Banking Remittance and collections - Products and Services Unit

Objectives : Understand various modes provided by the banks for making local payment as well as payment at other places Understand various modes available for remitting money to other places through the banking system

Debit Cards : Debit Cards Are a substitute for self cheques Are a faster mode of withdrawing cash and for making payments to third parties Debit the customer’s account instantly Provide 24 hours 7 days week banking services

Credit Cards : Credit Cards Customer gets certain credit limit from the credit card issuing bank The amount utilized is debited to credit card account Customer gets some time to make payment to the bank Customer gets interest free credit for upto 40 days

Travel Cards : Travel Cards Are pre-paid debit cards Are useful for travel abroad A travel card



Collection Services : Collection Services Transfer Local Clearing Electronic Clearing System Cheque Collection National Clearing Cash Management Service Bill Collection

Transfer : Transfer Transactions involving transfer of money from one account to another account within the branch of a bank or within the branches of same bank Inter-connected through networking enables speedier transfer within branches Traditional methods (without networking) take time in realisation of proceeds

Local Clearing : Local Clearing Facilitating collection of cheques which are drawn on local branches of banks Bankers meet at Clearing House for exchange of cheques RBI and / or SBI and / or commercial banks maintain Clearing House in different locations Day’s inward and outward cheques between banks are exchanged and transaction amounts are “netted” Local clearing is “NEFT” settlement National Clearing is RTGS CTS- Cheque Transaction Services

Electronic Clearing System (ECS) : Electronic Clearing System (ECS) Payment instructions are transmitted electronically Covers high volume, low value transactions Both debit (ECS Debit) and credit (ECS Credit) transactions are covered Credit ECS Example : Interest on Securities, Dividends, and Regular Salaries Debit ECS Example : Insurance premiums, Loan repayments, and Utility bill payments

Electronic Clearing System (ECS) (Contd.) : Electronic Clearing System (ECS) (Contd.) Benefits: Speed Accuracy Secured channel Avoids manual interference (processing of transactions) Saves time due to systemic handling Benefits flow to bank, customer and user public

Cheque Collection : Cheque Collection Local cheques are collected in local clearing Outstation cheques (upcountry) are collected by sending the cheques to respective banks’ branches Unlike local clearing, cheque collection takes time due to physical movement of cheques to a different location

National Clearing : National Clearing Speedier collection of outstation cheques drawn on larger cities RBI has linked larger cities RBI has initiated a project for truncation of cheques(CTS) Truncation of cheques enable seamless clearing of cheques across the country Images can be transmitted electronically to any bank within seconds The presenting bank scans the cheques and sends only the images to the clearing house

Cash Management Service (CMS) : Cash Management Service (CMS) Enables large customers with wide network of operations Manage liquidity efficiently through speedier collection, efficient management of payments Availability of MIS on collections and payments – a major benefit of CMS Distributed collection and payment at point of occurrence of transactions Enables customers under CMS to reconcile their payments and collections on a daily basis

Bill Collection : Bill Collection Instead of paying through cheques, business houses draw bills at times Bill can be demand bill or usance bill Invoice, bill, and document of title to goods (trade documents) are handed over to bank by seller Banks send to buyer’s bank for collecting payment Buyer’s bank hands over all trade documents upon receipt of payment from buyer on a demand bill or receipt of acceptance in case of usance bill from buyer Buyer’s bank remits to seller’s bank and seller gets money for goods / services sold

Forex : Forex Need arises when payments are to be made to a beneficiary in an overseas country in foreign currency Payments received in foreign currency needs to be realised in Indian currency Banks maintain accounts in an overseas country to facilitate transactions involving foreign currency Such accounts are known as “ Nostro ” accounts

Remittances through M-Banking: Customer Perspectives Observations from India : Remittances through M-Banking: Customer Perspectives Observations from India

The Opportunity Inherent in Domestic Remittances : The Opportunity Inherent in Domestic Remittances Strong existing demand and volume: MicroSave research shows migrants sends monthly amounts between Rs.1,000 to Rs.3,000 Source: MicroSave research on remittances in India (Punjab-Bihar/UP corridor):

Current Remittance Channels : Current Remittance Channels 20 Increasingly, migrants use bank accounts to transfer money home. Increasing financial inclusion changing the face of informal channels. Tappawalas and courier services use bank accounts to move money between places giving rise to bank couriers. However, high levels of dissatisfaction exists with current channels of usage. Source: MicroSave research on remittances in India (Punjab-Bihar/UP and Gujarat/Bihar/Orissa corridor):

Remittance Channel Preferences : Remittance Channel Preferences Remittance Delivery Channel Value Proposition Weakness Banks Instant Delivery , Safe, Cheap Time-consuming, Difficult for recipient, Far Away Bank Courier Instant Delivery, Safe Not in own bank a/c Hawala/ Tappawalla Doorstep Delivery, Convenient High Cost, Unsafe Post Office Safety, Doorstep Delivery Delays, outdated Carried by friend/ self Trust, doorstep delivery Can take time, robbery However, this number hides the large hindrances remitters face in using banks including: Long lines and lengthy processing time Difficulty of opening bank account Inconvenience Lack of doorstep delivery Not surprisingly, formal and informal have completely opposite strengths and weaknesses

Can BCs- Business Correspondents Bridge This Gap? : Can BCs- Business Correspondents Bridge This Gap? BC Model Likes Doorstep delivery, particularly important for recipients, less savvy with banking transactions Cheaper services Saved Time Trust and safety But experience and repeated transactions needed to build trust. Source: MicroSave research on remittances in India (Punjab-Bihar/UP and Gujarat/Bihar/Orissa corridor):

Highlights : Highlights Formal and informal channels of remittance co-exist Formal: bank, post office, increasing BC services Informal: courier/ hawala , friend, self, and tappawala (for Orissa only) Good business opportunity Close to 70% remitters send up to Rs.5,000 per month No one channel matches remitter/recipient requirements Bank, the most trusted channel does not provide doorstep delivery, high processing time Courier, which delivers money at the doorstep, charges high fees and is not safe Post office , which delivers money at doorstep, delays delivery, expensive Using a BC model for remittances works Delivers the money close to source makes customer happy Although trust is there as agent attached to bank, there is a scepticism on how agent will work Experience with the channel provides much needed trust, so the model has to start and show that it works Customers willing to pay more than bank charges for better service


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