Digital Banking and Alternative Delivery Channels

The rapid advancement of technology has revolutionized the financial sector, giving rise to Digital Banking and Alternative Delivery Channels (ADCs) that redefine how customers interact with financial services. These innovations enhance accessibility, efficiency, and convenience, allowing banks to cater to a wider audience while optimizing operational costs.

1. Digital Banking & Alternate Delivery Channels

2. Unit I - Introduction to Digital Banking : Need & concept of digital banking, Future of banking services channels, Cost benefit analysis. Unit II - Payment & Settlement Systems : Wallet to e-Wallet, Security features, Risk management, NPCI-Products & initiatives, UPI Architecture Unit III - Self Service Lobbies : E-lobbies-features, Facilities, ATM Basics & types, Cash dispensers, Cash Recyclers, Self –Service passbook Printers, benefits, Operations and Trouble Shooting, Utility & validation process and implementation strategy, Deployment, maintenance, monitoring, utilization & customer convenience. Unit IV: New Developments in Digital Banking : Developments in Digital Tech & Business, Fintechs , Business Eco System, Block Chain, Crypto Currencies, Peer Financing, Cloud, virtualisation , Analytics, Artificial Intelligence, Machine Learning, Internet of Things(IOT), Societal Adaptation Unit V : Cyber Crime : Over view of Cyber Crime, Common Cyber Crimes, Cryptography & Encryption Model & PKI and Digital Certificates, Malware Reference Books : Indian Institute of Banking & Finance (IIBF), Digital Banking, Taxmann , 2019 Digital Banking & Alternate Delivery Channels – Syllabus - 4 Credits

3. Unit – I. Introduction to Digital Banking

4. To start with, let us distinguish between the terms “ digitization” and “digitalization”. The term “digitize” describes the process by which any form of data is converted into a digital format. For example, converting an analog audio signal into its digital form; converting credit records and applications into a soft copy, usually into a database, etc. In a broader business context, “analytics” can be considered as further digitizing the information into new knowledge or insights in order to make a decision. The term “digital” is typically used to refer to the storage of data in the form of digital signals represented using the numbers 1 and 0. Here, the term refers to information and the format in which it is stored, such as digital music, digital customer records, etc. Digitization Vs Digitalisation

5. The term “digitalization” goes beyond simply digitization. In this sense, books don't simply become eBooks, but a complete interactive and multimedia experience; business processes give way to online dialogues between parties that were not previously connected directly. Thus, an organization in order to become digital must focus on the automation of processes to make it more efficient. A company focusing on digitalization might aim to achieve more effective outcomes from those processes by improving the customer engagement . Digitization Vs Digitalisation

6. Digital banking - The term digital banking , just like any new word, means different things to different stakeholders. For Customers - It can mean myriad of new services and products resulting in a pleasurable, buying / spending experience. For Organisation - It means setting up of state of the art ICT infrastructure coupled with a good dose of analytics in order to provide an excellent customer experience. For Regulatory or third party – It could mean the ability to provide accurate and reliable information on the fly. What it means ?

7. A method of banking in which the customer uses the Internet as the medium to conduct the transactions electronically. Digital Banking gives you the luxury of freely accessing and performing all traditional banking activities 24*7 without having to personally go to a bank branch to get your work done. Digital Banking can be done either through a laptop, tablet or your mobile phone. What is Digital Banking

8. DIGITAL Banking is the new paradigm that offers considerable benefits to banks in terms of increasing productivity and profitability. It is accomplished by leveraging state-of the-art technology infrastructure to bring about changes in internal processes and external interfaces. It is expected to improve the 4Cs – cost, convenience, control and customer experience. “Digital Banking—a new concept in the area of electronic banking, which aims to enrich banking services by integrating digital technologies, for example strategic analytics tools, social media interactions, innovative payment solutions, mobile technology and a focus on user experience.” Digital Banking a Change Agent

9. “Embracing a fully digital strategy requires end to end modernization of a bank's often outdated infrastructure. It requires a transition from an account-based view of banking customers to one that knows them as individuals and enhances the customer experience with relevant, convenient and personalized products and services.” “Digital Banking is the application of technology to ensure seamless end-to-end processing of banking transactions/operations; initiated by the client, ensuring maximum utility to the client in terms of availability, usefulness and cost; to the bank in terms of reduced operating costs, zero errors and enhanced services.” However, any definition of digital banking is only centered around enhanced customer service and user experience. Digital Banking a Change Agent

10. Why to go Digital - Advantages of becoming a Digital Bank Worldwide, the trends have been very clear and consistent: Customers are becoming increasingly comfortable with transactions on digital channels –whether for product purchases or services Fin Tech platforms and services have responded to e-commerce and mobility with disruptions across the board – resulting in loss of opportunities and value for the traditional banks The cost of meeting tough regulations, has eaten into the allocations for investment in business and IT, which then makes banks less competitive, eventually affecting their bottom line even more.

11. Why to go Digital - Advantages of becoming a Digital BanK Remaining relevant in view of ever changing consumer behavior and changing business model for several industries. Exploiting the ability to tap into increasing digital awareness, and huge amounts of digital information about the customer via social networks Reengineering extant business processes and building technology platform in order to manage customer expectations like personalized services and integration of information across channels for a seamless experience Facing challenge of competition from less regulated and more agile Fin Techs Coping with increasing cost and complexity of regulations and reporting. Digitalization is the only way forward to meet these demands.

12. IN order to understand the key dimensions of a typical digital bank, we need to understand and appreciate the fact that a bank has both external and internal facets. While the external facet refers to the customers (both retail and corporate) of the bank, the regulator and other competing banks and partners, the internal facet includes treasury, back office operations and HR department. Dimensions of a Digital Bank

13. 1. Customer / Sales/ Services This is the very purpose for a which a bank is set up, primarily because banking is predominantly a service industry. In this dimension, digital banking, essentially, concentrates on providing a seamless, pleasurable customer experience. In order to accomplish it, a digital bank is expected to implement holistic CRM (subsuming operational, analytical and collaborative CRM). Customer Centric Business Models are based on a holistic understanding of the customer, and are used to achieve a strong digital engagement, eventually leading to highly personalized, co created products and services using data and Analytics.

14. 1. Customer / Sales/ Services ( Continues) Developing an Omni-Channel Integrated Platform – to enable consistent user experience across all the channels (online, social, Mobile) Developing the capability to acquire, integrate and analyze multiple sources of internal and external data – to understand the customer and her context better Understanding and defining relevance and timeliness for the customer – to tailor processes from the point of view of the customer.

15. A sample customer journey for a customer looking for Banking Products. According to Harvard Business Review, 73% of all customers use multiple channels during their purchase journey. The State of Commerce Experience 2021 shows that almost half (44%) of B2C buyers and 58% of B2B buyers say they always or often research a product online before going to a physical store. Even when in-store, they will still go online to continue their research.

16. 2. Regulatory / Other Banks This dimension comprises seamless communication of several business level, fraud-related reports to RBI. This process should be made as automatic as possible in order to become fully digital. This dimension also involves seamless communication between various commercial banks in order to have smooth banking operations. Ability to proactively manage risk (financial, operational, reputational) and regulation in a demanding business environment, with exposure to constantly evolving technology platforms, is the most important benefit to be achieved from digitization.

17. 3. Technology Dimension involves core banking, implementation of sophisticated delivery and payment systems such as internet and mobile banking, m-wallets, omni -channel, data warehouse, service oriented architecture, offering non-critical applications on a cloud, implementation of sound and best practices of information/cyber/network security protocols, security operations center, etc. The paradigm of SMAC stack plays a major role in a digital bank. As is well known, SMAC stands for Social-Mobile-Analytics-Cloud . All of them are customer facing, except the cloud aspect. Social perspective aims at growing business by getting connected to customers via social media, listening to and redressing their grievances, monitoring customers' sentiments about products and services, redesigning and rectifying products and services based on customer feedback, detecting fraudulent transactions, providing instant and personalized financial advices, etc.

18. 3. Technology Dimension (Continues) Mobile perspective talks about offering entire banking services on a mobile device by providing anywhere-anytime banking Analytics dimension acts like the brain of the bank and analyzes customers‘ transactional, demographic and psychographic data and brings out the insights into the customer purchasing and saving patterns, target marketing, segmentation, crosssell /upsell, credit scoring, default modeling, churn detection, fraud detection, etc.. The cloud dimension is different – in that a bank cannot become a fully functional digital bank without its services, data, platform, etc. being on cloud. While cloud aspect can reduce the capital expenditure to a great extent, it is a business call a bank has to take considering security, sensitivity and criticality of customer data.

19. 4. Data Dimension Data dimension consists of implementation of best practices of data governance that will ensure high data quality and master data management solutions. Data governance is a collection of processes, roles, policies, standards, and metrics that ensure the effective and efficient use of information in enabling an organization to achieve its goals. Data governance defines who can take what action, upon what data, in what situations, using what methods. Success of digital banking heavily hinges on the data quality available in a bank.

20. 5. Business Process Reengineering (BPR) This dimension advocates redesigning and reengineering of current business processes in order to achieve the customer centricity. Success of digital banking depends on the easy, uncomplicated and less time-consuming business processes . Unless this dimension is taken care of, a bank cannot claim to become digital, no matter how much investment is made in other dimensions such as data, people and technology. Business processes have to be continually monitored to ensure that they provide a pleasurable customer experience. This dimension also calls for either tweaking or total revamping of the extant organization structure within a bank so that redeployment of human resources takes place to ensure smooth conduct of internal and external operations of a bank while embarking on the digital journey.

21. 5. Business Process Reengineering (BPR) - Continued In order to become comprehensively digital, any bank should carry out BPR exercises in both customer-facing and non-customer facing departments in parallel. Then, a bank can claim to have become completely digital.

22. 6. Analytics dimension Analytics dimension is the brain of digital banking without which a bank cannot start and sustain the difficult journey of digital banking. This dimension influences the success of almost every other dimension of digital banking. Once reasonable customer data quality is ensured, analytics paves way for a pleasurable customer experience, successful resolution of several business problems such as customer segmentation, credit scoring, target marketing, market basket analysis (cross-sell and upsell), default (NPA) prediction, fraud detection, churn modeling, sentiment analysis, campaign design and measuring its success, customer lifetime value modeling and prediction, etc. Analytics is predominantly of three types: Descriptive Predictive Prescriptive.

23. 6. Analytics dimension Descriptive analytics involves answering complex, high dimensional queries in a graphical form including bar charts, histograms, pie charts, stacked bar charts, hear maps, box plots, etc. They primarily convey the information content available in raw data, which could be historical or current. Predictive analytics looks for patterns/ correlations and exploits them to predict future customer behaviour in order to solve the aforementioned business problems. It comprises advanced applied statistical algorithms and machine learning techniques. Finally, prescriptive analytics consists of applying optimization techniques to recommend future course of action based on the predictions made in predictive analytics stage. While all the three type of analytics are useful, descriptive analytics tells the top management of a bank where the business stands as of now, whereas the remaining two forms of analytics suggest ways of growing the business and profits.

24. 7. Internal Dimension It comprises applications of sophisticated analytics for measurement, modeling and management of various kinds of risks a bank faces, when it is in operation. They include credit risk, market risk, operational risk at the highest level and many other risks at a lower level. This dimension also calls for successful implementation of human resource analytics to optimize various operations in that department; successful FOREX rate prediction has a direct bearing on the efficiency of the treasury department.

25. 8. People Dimension People dimension calls for recruitment of well qualified and suitably trained specialist manpower in a bank. The positions include data scientist, data warehouse specialist, data steward, information architect, segmentation manager, channel manager, business analyst/business intelligence specialist, Hadoop/Spark specialist, etc. People dimension should be accorded topmost priority because digital banking requires specialists to look after its various dimensions. Whether the goal is to maximize revenues or meet regulatory requirements or to respond to the trends in the market and industry as a whole, digitalization has the potential to transform every aspect of banking.

26. Future of banking service channels The banking industry of the future will look radically different from what it is today driven by some evolutionary changes. It would be safe to say that the future of banking is ‘Digital’. Given most customers are now comfortable using online channels, the traditional ‘customer loyalty’ for physical proximity of branch would now be influenced by personalization and customization provided through digital offerings. Some of the key purchase drivers would be ‘Value for money’, ‘Ease of buying’, ‘Personal safety’, ‘Customer Experience’ and ‘Personalization’.

27. Consumers have become more demanding of digital experiences. The pandemic has only amplified the need for easy access to banking products, services and information. The pandemic has reshaped our lives from how we shop, travel, work, to even how we bank, and has also driven a change in consumer behaviour NEED FOR ADOPTION OF DIGITAL PAYMENTS DUE TO COVID-19

28. “ Without data you’re just another person with an opinion .” – W. Edwards Deming

29. Digital Payments – 2018 -2021 (Volume in Millions) Source : Retail Payment Statistics - NPCI

30. Source : Retail Payment Statistics - NPCI Digital Payments 2019 vs 2020

31. Need for Digital Banking Indian Economy is the world’s fifth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP). The country ranks 142nd in per capita GDP (Nominal) with $2,190 and 126 th in per capita (PPP) with $6826 according to IMF World Economic Outlook (April -2021). India is a member of G-20, BRICS and a developing economy that is among the top 20 global traders, according to WTO. According to IMF, Indian economy likely to expand and the demand for banking services, especially digital services is expected to be strong Indian population is about 1394 Million, (Worldometers.com - July 2021) with around 18% of the total world population and with approximately 1,58,386 functional offices of all banks, March 2021 – RBI Statistics) bank branches, the population per branch is around 8801.

32. Need for Digital Banking Similarly, population to serve per ATM, with 2,14,654 ( May 2021) ATMs in the country is around 6494. It seems that both brick and mortar channels ( branches) and ATMs are under pressure for banking services not only from the operations point of view but from the business point of view as well Cost of performing a transaction at branch level is quite high as compared to ATM; Cost is further reduced when customer opts to transact at Merchant Point of Sale (POS) or ecommerce or Mobile banking. Presently we have 45,10,481 bank linked POS , (RBI, May 2021) and considering the population this seems small. Adoption of digital channel can help banks to cut costs, deepen customer satisfaction and Loyalty and drive long-term relationships and profitability.

33. Customer preferences for Digital Banking Leading consultancy research reports reveal that digital banking is on the threshold of overtaking traditional ‘brick and mortar’ banking as preferred delivery channel. There are evidences that if a bank is not responding to the imperatives of this change, as quickly as it should, it may actually missing the opportunity. The reports have concluded that customers do not mind having to pay a little extra for digital banking services, as it offers them value and convenience . Recent developments of new digital features in banking services delivery often utilize : The power to access the internet from anywhere Tremendous advances in Analytical tools which are able to decipher and work out customer profiles. New technologies which enable end to end communication between the customers and the bank

34. What Customer expects from a Digital Bank

35. Diffusion of Innovation theory Adopter categories divide consumers into segments based on their willingness to try out a new innovation or product. Adopter categories, as a term, is part of the Diffusion of Innovations Theory and has been applied to several studies, including marketing, organizational studies, knowledge management, communications, and complexity studies, among others . The adopter categories were first named and described in the landmark book  Diffusion of Innovations  by sociologist Everett Rogers in 1962.

36. Adopter categories : Characteristics Innovators: Innovators are willing to take risks, have the highest social status, have financial liquidity, are social and have closest contact to scientific sources and interaction with other innovators. Their risk tolerance allows them to adopt technologies that may ultimately fail. Financial resources help absorb these failures. Early adopters : These individuals have the highest degree of opinion leadership among the adopter categories. Early adopters have a higher social status, financial liquidity, advanced education and are more socially forward than late adopters. They are more discreet in adoption choices than innovators. They use judicious choice of adoption to help them maintain a central communication position Early majority: They adopt an innovation after a varying degree of time that is significantly longer than the innovators and early adopters. Early Majority have above average social status, contact with early adopters and seldom hold positions of opinion leadership in a system

37. Adopter categories : Characteristics Late Majority : They adopt an innovation after the average participant. These individuals approach an innovation with a high degree of skepticism and after the majority of society has adopted the innovation. Late Majority are typically skeptical about an innovation, have below average social status, little financial liquidity, in contact with others in late majority and early majority and little opinion leadership Laggards : They are the last to adopt an innovation. Unlike some of the previous categories, individuals in this category show little to no opinion leadership. These individuals typically have an aversion to change-agents. Laggards typically tend to be focused on "traditions", lowest social status, lowest financial liquidity, oldest among adopters, and in contact with only family and close friends.

38. Facebook Company: Facebook Year introduced:  2004 User friendly Interface Controlled Growth Primary focus on product not business or Shareholder Value Privacy controls Learning from Successful Product

39. Digital Banking Frame work (PwC) - Capability Frame work

40. Foundational Capabilities It is set of behaviors and capabilities that banks should develop to lay a strong foundation for digital banking. Digital IT Strategy: Internalize and prioritize digital banking as a top goal from the board on down CIO Collaboration: Build a CIO-centric culture of collaboration and consistency from the top down Robust Security: Assess, design and implement security assessment programs, processes and controls Data Quality Management: Use a comprehensive, structured data quality framework to limit technical risk, produce improved data output, and support business and IT alignment. Integrated Risk and Compliance: Test security mechanisms with real-world exercises to understand weaknesses in the network and application infrastructure, prior to a hack attack or attempt

41. Differentiating Capabilities Building on top of the foundations will allow a bank to break from the traditional constraints of the past. To get there, banks should focus on: Talent Management: Use a talent assessment framework to identify skills gaps and transform the bank, such that learning, recruiting and culture enable innovation and collaboration. Expand the human capital strategy to recruit from think-tanks and tech-savvy RMs. Facilitate focused, on-the-job training, mentoring and peer coaching, and promote a culture of collaboration and innovation. Develop an innovation centre of excellence to impress the importance of imagination, creative thinking and inventiveness more deeply into the bank's culture

42. Differentiating Capabilities Integrated Multi Digital Channel Platform: Target and overcome legacy system challenges with streamlined, future-state IT approaches. Build and deploy secure c u s t o m e r - f a c i n g applications to reap the benefits of a digital presence. Build the data assets as platforms and enterprise services to enable deeper and wider access to information throughout the bank Customer Analytics: Use communities of interest and voice-of-the-customer opportunities to promote information sharing. Use sophisticated data analytics to build an understanding of customer behaviors , needs and trends.

43. Leading Capabilities Its helps the banks focus on their core business values. To evolve as market leaders in their areas, banks should seek out and cultivate employees with more sophisticated digital skills and a strong co-creation agenda. Co-Creation of Products and Services: Develop a co-creation strategy roadmap to pave a path for program implementation and to illustrate how value will be delivered and communicate this roadmap across the Enterprise . Develop a platform and alleviate gaps between the current state and the future state of the architecture needed to support a robust customer engagement and omni channel ecosystem. Build communities through customer workshops and engage key internal and external stakeholder communities to drive growth Govern the process by facilitating engagement among key stakeholders to establish a culture of innovation and coach teams towards meeting objectives on time and within budget.

44. Cost benefit Analysis – Digital Banking NEFT RTGS IMPS UPI Transfer Limit No Limit No Limit 2 Lakh per day 1 Lakh per day Cost as per the amount of transfer (Net Banking / Mobile Banking) Nil Charges Nil Charges Nil Charges Nil Charges Cost as per the amount of transfer done through branch Up to 1,00,000 - Rs.2 + Applicable GST. Above 1,00,000 – Rs.10 + Applicable. Up to 5,00,000 - 20, > 5,00,000 – 40 < 1000 - 3.50 + GST 1001 – 100000 – 5.0 + GST >100000 - 15 NA

45. The benefits of Digital Banking Convenience The ability to bank wherever and however you want is one of the main benefits of mobile and online banking solutions, Smartphones and computers are typically readily available, allowing 24/7 account access to take care of any number of banking tasks quickly. With Mobile banking apps , you can check your balance, transfer funds and set up a notification to alert you if you overdraft your account—all without the need to visit a branch. It’s a real time-saver. Electronic transactions are more secure (you aren’t carrying cash), they’re better from a cleanliness standpoint (you aren’t touching cash) and you can track what happens with your transaction electronically.

46. The benefits of Digital Banking 2. Features Many banks’ mobile and online experiences are rich with features. Banks might offer personalized financial advice, savings tools, big purchase calculators or even virtual assistants who can help them decide what they can truly afford, all within the convenience of an app. Features like peer-to-peer payments rank lower in terms of value. Still, the ability to send money within minutes to anyone in the nation through your mobile banking app can be handy, and many banks now offer this feature. Locating nearby ATMs, cardless ATM withdrawal and budgeting and tracking tools are perks your mobile app may offer as well.

47. The benefits of Digital Banking 3. Security Financial institutions consider Security as their number one priority and that extends to mobile and online banking. Threats, of course, exist everywhere, including inside the bank branch. Fortunately, many banks make it easy to take extra security precautions. For example, your bank may allow you to add multi-factor authentication to your mobile app and online bank account. Many mobile banking apps now allow you to use biometric authentication to log in. for instance, provides three different biometric login options—fingerprint, voiceprint and facial recognition. Your bank may also scan for certain risks automatically. Overall, you may be more secure than you think using digital banking. “It’s been reported that digital payments and e-wallets actually offer more security in some cases than a physical card, giving some users even more reason to use digital banking tools,”

48. The benefits of Digital Banking 4. Control Having control over your finances with the ability to self-serve is another significant benefit of digital banking, as is real-time access to manage and move money as you see fit. Unlike banking in person, mobile banking apps and websites generally have no restrictions on when you perform banking tasks, like depositing a check or moving money from one account to another. And it’s getting easier to navigate daily transactions. “The world of technology is offering the opportunity to be able to receive money and to spend money in ways that are much easier than they were in past times,” Banks are continuing to advance the features offered on their digital banking platforms. Automated savings tools and push notification alerts for things like low balances or overdrafts are commonplace. In some cases, you can even activate a new debit or credit card from your app.

49. Unit – II Payment & Settlement Systems

50. Wallet to E- Wallet Today, we are surrounded by numerous devices that have enhanced our way of living through advanced technology. The generation has been introduced to an ease of living with innovation in the world of technology. The most vital enabler of digitalization is the smartphone. According to Statista, the number of operational mobile devices worldwide is expected to reach 17.72 billion by 2024, which is an increase of 3.7 billion devices as compared to 2020. Efficient Payment and Settlement System is very significant for any country’s growth. With the adoption of core banking solutions, net banking, and card payments, the way we make large value transactions has changed significantly. Similarly, Mobile wallets, or digital wallets, are also trying to bring about a revolution in low-value transactions.

51. Wallet to E- Wallet A mobile wallet is just what it sounds like – a wallet that exists on your smartphone instead of in your pocket. The Mobile Wallet is an electronic wallet that keeps the payment card information on a mobile device. It presents a great opportunity for the user to make online or offline payments across platforms instantly. I n the traditional meaning of the term, "wallet" refers to a purse or folding case containing money or personal details such as an identification card. An E-wallet or Digital wallet means an electronic wallet that stores both financial as well as personal information According to the Global Forecast Report by Market Research Future, it is estimated that the mobile wallet market will rise at a CAGR of 15% and is expected to reach nearly USD 2100 billion by 2023

52. Wallet to E- Wallet The key advantage of using a mobile wallet is that we get a convenient, one-stop shopping experience where we can make purchases in the store, pay bills, book tickets, transfer funds, redeem coupons, receive loyalty points without ever having to leave an app . In a mobile wallet, all things that a physical wallet would hold can be stored. It can store debit cards, credit cards, loyalty cards and therefore gives customers more diversified and secured options to make payments. With this technology, you can pay your bills online as well as offline without having to pay by cash or use your credit or debit card every time. Mobile wallets, not only provide customer convenience but also provides marketers with a lot of insights to understand consumer behavior, the choice to formulate their marketing strategy accordingly as all online transactions are completed .

53. Wallet to E- Wallet With government promotion on paperless and e-documents with various initiatives like mParivahan for transport information (Driving license, RC, Insurance) and other identity documents, the need to carry a physical wallet doesn’t exist. A mobile wallet, therefore a perfect alternative for a real wallet. In addition to that, Mobile wallets play an important role in promoting financial inclusion in the country by extending financial services to all segments of the people, including those who aren’t part of the traditional banking system. In emerging economies, mobile applications provide a platform to target a larger population having no bank account but having a mobile phone. Some of the other benefits of using a mobile wallet include variety, rewards & offers, security, simplified user interface

54. Supporting Financial Inclusion The main objective of financial inclusion is to ensure financial services are accessible and affordable to all segments of people regardless of their wealth, income or savings. This include banking, loan, equity, and insurance products to the economically underprivileged. Mobile wallets supports this initiative by offering diversified financial services to the users.

55. Advantages of Mobile Wallet Convenience : Mobile wallets enable transactions to be completed instantly. With a few taps here and a few clicks there, payment is done. No more waiting in long lines or going to the ATM to withdraw cash. There’s no better satisfaction than purchasing what a customer want in a quick and convenient manner. Easy and quick : When a user uses a mobile wallet, he/she don’t need to keep entering their card number, expiry date, CVV code etc. every time they make a purchase. Once details are entered, it will be stored, and with a click, payment goes through. Moreover, in a store, user can avoid searching through bag for wallet; instead, just pick up the phone which is always handy, scan QR code and payment is done.

56. Advantages of Mobile Wallet Easily accessible : With all the card details in one place, user’s day-to-day transactions become easier to process. Plus, phone is always easily accessible, serving more than just a communication device. Wide range of uses : A mobile wallet can be used for various transactions, such as bill payments (DTH, electricity, water, broadband, cable, etc.), buying tickets for flights, buses or trains, purchasing movie tickets, buying groceries, and even transferring money. These days the reach of a mobile wallet has gone far and wide. Discounts and offers: Mobile wallets often have promotions, Reward Points, Cash Back, bonuses, gifts, and other incentives that can save money.

57. Advantages of Mobile Wallet Hassle-free payments : With the hectic and erratic schedules, user may tend to forget the date on which the bills are due. A mobile wallet can be a savior in such times. Set up auto pay and the app will automatically pay bills on the specified date. Security : A physical wallet can be stolen, but mobile wallet cannot. Even if the phone is lost, mobile wallet has security settings that ensure only user can access it. So, no one can just reach in and grab the debit card. Moreover, when data is transmitted via a mobile wallet for making payments, the account number isn’t communicated. Instead, encrypted payment codes are used to ensure security

58. Types of frauds – Mobile Wallet Request money fraud The Request’ feature allows people to send user a payment request. A user can send money to another user by just clicking on the Pay’ button and entering UPI PIN. Fraudsters misuse this feature by sending fake payment requests with messages like Enter your UPI PIN to receive money, Payment successful receive Rs . xxx etc. b) Scan QR Code to receive money fraud Fraudsters share a QR code over multimedia apps like Whatsapp and asking user to scan the code in order to receive money. Remember, there is no feature which allows to scan a QR code to receive money. Users should not act upon such requests.

59. Types of frauds – Mobile Wallet c) Payment fraud via third party apps Users often use social media channels to highlight problems they are facing with a transaction. Fraudsters call users or approach them through social media pretending to be company representatives. They ask users to download screen-sharing apps such as Screenshare , Anydesk , Teamviewer and hold their debit/credit card in front of the phone camera so that the mobile wallet verification system can scan the details. Once they have the card details, they obtain the OTP SMS from the phone for transferring funds to their own account. d) Social Media Scam Fraudsters keep track of what users are posting on the customer care handle (tweets about issues related to availing cashback, money transfers etc.) and react immediately. One popular way they trick users is by tweeting fake customer care numbers as helpline numbers. Customers end up calling the fake helpline number and sharing sensitive information such as card and OTP details.

60. Types of frauds – Mobile Wallet e) Phishing Phishing is when someone pretending to be someone else (for example, someone pretending to be a customer care agent) asks you for personal information. To spot a phishing attempt: Check what information they’re asking for. Wallet companies won’t ask you to share personal information like payment account numbers, PINs or passwords over email. Find out if the email address is fake. f) Social engineering fraud Social engineering is when fraudsters use user’s personal details to trick them into trusting .The fraudsters call the user claiming to be customer support representatives of his/her bank. They use details user shared on social media (birth date, location etc.) to gain his/her trust and ask to share sensitive bank account/card information. They then ask user to provide the OTP to complete the transaction and top up their wallet using Debit Card.

61. Types of frauds – Mobile Wallet g) SIM Swap Fraud A SIM swap scam is where fraudsters get a new SIM issued for your phone number using your personal details.. The fraudster can call you pretending to be a representative from your mobile operator, and ask you to forward an SMS to upgrade your network. This SMS contains a 20-digit number from the back of a new SIM. This SMS deactivates your current SIM and activates a duplicate SIM. By doing this, they gain access to OTPs needed for authorizing payments from your bank account Spoofing Spoofing is when someone fakes the identity of the email sender so it looks more trustworthy. Here’s how to see more details about the sender of an email. In Gmail, click the drop-down next to the 'Reply' button and click Show original. Make sure the 'From' address and the 'Reply to' address match. Check that the address on the 'Message-ID also matches the 'From' address domain.

62. Mobile Wallets – Market Share (UPI ) Source : NPCI - UPI Ecosystem Statistics

63. Mobile Wallets – Market Share (UPI ) - ( July 2021) Source : NPCI - UPI Ecosystem Statistics

64. Security Features of Mobile Wallet Lets consider the example of GPay to know how the wallets are generally protected . Google Pay gives customers fast, hassle-free checkouts and, at the same time, peace of mind that Google stores their data with multiple layers of security. Also, Google Pay does not send merchants their customers' actual card numbers when they pay in stores; instead, Google Pay facilitates a process called tokenization in which a token stands in for a customer’s actual credit and debit card numbers. Tokenization technology is an effective way to keep card data safe during mobile payment transactions. In order to complete the tokenization process, Google Pay works with: Mobile device manufacturers Payment terminal providers  Payment networks Token Service Providers (TSPs) Card issuing banks

65. Security Features of Mobile Wallet Together, Google Pay and these organizations work to build the tokenization infrastructure so that the: Customer verifies their identity when adding a card to Google Pay (ID&V) Customer’s mobile device securely stores their tokens Google Pay app transmits tokens to the payment terminal during in-store transactions NFC hardware follows industry standard specifications

66. Security Features of Mobile Wallet A Google Pay user adds a credit or debit card to their Google Pay app. Google Pay requests a token to represent the card they’re trying to add from the bank that issued that card. Once the token is issued, this card is now “tokenized,” meaning it has a unique identification number associated with it. Google Pay encrypts the newly tokenized card and it is ready to be used for payments. To make a purchase, a customer taps their mobile device on a point-of-sale terminal or chooses to pay in your mobile app. Google Pay responds with the customer's tokenized card with a cryptogram which acts as a one-time-use password. The card network validates the cryptogram and matches the token with the customer’s actual card number. Your acquiring bank and your customer's card issuing bank use existing customer information and decrypted customer billing information to complete the transaction .

67. Security Features of Mobile Wallet Security benefits   Google Pay’s tokenization process offers notable security benefits to both merchants and customers: Device lock screens, remote device wiping, and tokenized card numbers:  Customers enjoy protections from loss or theft of devices containing token information. Easy integrations: TSPs and Google Pay do the heavy lifting when it comes to tokenization, making the integration with Google Pay simple for merchants. Reduced merchant risk: The tokenization process means less sensitive customer information for merchants to have to store, reducing your exposure and worries about data breaches.

68. Security Features of Mobile Wallet

69. Remote Device Wiping Remotely find, lock, or erase Go to  android.com/find  and sign in to your Google Account. If you have more than one phone, click the lost phone at the top of the screen. If your lost phone has more than one user profile, sign in with a Google Account that's on the main profile. . The lost phone gets a notification. On the map, you'll get info about where the phone is. The location is approximate and might not be accurate. If your phone can't be found, you'll see its last known location, if available.

70. Pick what you want to do. If needed, first click Enable lock & erase. Play sound:  Rings your phone at full volume for 5 minutes, even if it's set to silent or vibrate. Secure device:  Locks your phone with your PIN, pattern, or password. If you don't have a lock, you can set one. To help someone return your phone to you, you can add a message or phone number to the lock screen. Erase device:  Permanently deletes all data on your phone (but might not delete SD cards). After you erase, Find My Device won't work on the phone. Important: If you find your phone after erasing, you'll likely need your Google Account password to use it again Remote Device Wiping

71. Overview of NPCI Reserve Bank of India, after setting up the board for payment and settlement systems in 2005, released a vision document incorporating a proposal to set up an umbrella institution for all the retail payment systems in the country. In 2007, the Payment and Settlement Act was passed. A working group of IBA formulated the details and NPCI was formed as a non-profit company (section 25 company) which was changed to section 8 company later and certificate of commencement of business was issued in April 2009. NPCI was handed over the operations of the NFS ( National financial switch) , the central switch of ATM networks from IDRBT. Over a period of time, various /payment systems were shifted to NPCI to govern. The ten core promoter banks are State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank N. A. and HSBC. In 2016 the shareholding was broad-based to 56 member banks to include more banks representing all sectors.

72. New domestic payment vehicles and platforms NPCI is the new entity that is being kept at the centre for any initiative for retail payments which are all electronic payments now. Aadhaar is the new identifier that is being tried to be put as the key in most of the new developments/products/processes in payment. The core objective was to consolidate and integrate the multiple clearing systems with varying service levels in to nation-wide uniform and standard business process for all retail payment systems NPCI has created a separate subsidiary to take its product to global market. The organization is getting offers from nations around Asia, Africa and the Middle East to improve their payment infrastructure. Internationalization of RuPay and Unified Payment Interface (UPI) are the primary focus of the NPCI International Payments Limited (NIPL)

73. NPCI – Service Portfolio RuPay Unified Payments interface (UPI) Immediate Payment Service (IMPS) National Automated Clearing House (NACH) Aadhaar Payment Bridge System (APBS) Aadhaar enabled Payment system ( AePS ) National Financial Switch (NFS) Bharat Bill Payment System (BBPS) National Electronic Toll Collection (NETC)

74. Rupay RuPay is an Indigenously developed Payment System – designed to meet the expectation and needs of the Indian consumer, banks and merchant eco-system. RuPay supports the issuance of debit, credit and prepaid cards by banks in India and thereby supporting the growth of retail electronic payments in India. RuPay is well poised to explore innovative payment opportunities such as Contactless – offline and online to drive adoption of low value payments. All RuPay Cards will now have the functionality of NCMC which can enable low value contactless payments (like transit, toll, parking, retail) using Offline technology. “ Rupay ” is the coinage of two terms Rupee and Payment . The Rupay visual identity is a modern and dynamic unit. The orange and green arrows indicate a nation on the move and a service that matches its pace. The colour blue stands for the feeling of tranquility which is the people must get owning while owning a card of the brand ‘ rupay ’. The bold and unique typeface grants solidity to the whole unit and symbolizes a stable entity.

75. Rupay Rupay Objectives: Providing an alternative to international card schemes for banks in India Making cost structure transparent and simple for banks Providing an opportunity for banks in india to actively participate in governance of the scheme and to design and develop products eminently relevant to India Providing universal access to card payment system Making acquiring business attractive for banks

76. Advantages of Rupay Card Lower cost and affordability : Since the transaction processing will happen domestically, it would lead to lower cost of clearing and settlement for each transaction. This will make transaction cost affordable and will drive usage of cards in the industry. Customized Product offering : Rupay , being a domestic scheme is committed towards development of customized product and service offerings for Indian customers. Protection of information related to Indian Customers : Transaction and customer data related to Rupay card transactions will reside in India.

77. Advantages of Rupay Card 4. Provide Electronic payment options to untapped/unexplored consumer segment : There are under penetrated /untapped customers segments in rural areas that do not have access to banking and financial services. Right pricing for Rupay products would make the rupay cards more economically feasible for banks to offer to their customers. Inter-operability between payment channels and products. Rupay card is uniquely positioned to offer complete inter-operability between various payments channels and products. NPCI currently offers varied solutions across platforms including ATMS, mobile technology, cheques etc. and is extremely well placed in nurturing Rupay cards across these platforms.

78. Features and Benefits of Rupay Card Complimentary Lounge Access Program – Domestic & International 24 * 7 Concierge Services Earn Cashback time after time Comprehensive Insurance Cover Exclusive Merchant offers Card Variants of Rupay Rupay Credit Rupay Contactless Rupay Debit Rupay Prepaid Rupay Global

79. Workflow of Card Transactions Entities involved in the transaction: Merchant location: Entity selling goods and services Acquiring Bank: The bank which has installed the POS terminal at the merchant location Card network: RuPay / Visa / MasterCard, etc. (transaction routing and settling agency) Customer / Consumer : Cardholder Issuing Bank: The bank which has issued the card to the customer

80. Workflow of Card Transactions

81. Workflow of Card Transactions A consumer purchases some goods / services and uses a debit / credit card to pay the merchant. The merchant (terminal) sends the encrypted transaction data to the acquiring bank system / switch for authorization. The acquiring bank sends the transaction data to the consumer’s (card issuing) bank over the card payment network. The issuing bank authenticates the card / cardholder details; based on successful authentication and after checking availability of balance (for debit card) or credit limit (for credit card) authorizes the amount and issues an authorization code or declines the transaction. The acquiring bank notifies the merchant that the transaction either has been authorized or declined; the merchant then completes the transaction (if successful, then print receipt and hand over the goods, etc.) Subsequently, the merchant, through the acquiring bank, will claim the settlement for funds. The inter-bank settlement (between issuing bank and acquiring bank) will take place through the card network

82. National Financial Switch ( NFS) The institute of Development and Research in Banking Technology (IDRBT) , Hyderabad had been providing switching services to banks in india through National F inancial Switch. IDRBT decided to have focus on research and development activities and therefore, It was looking for suitable arrangement for shifting NFS business to some national level organizatio n for payment system. NPCI after commencing business, considered this as an opportunity and taken over the National Financial Switch (NFS) ATM network having which was having 37 members and connecting about 50,000 ATMs on December 14, 2009. Over the span of few years, NFS ATM network has grown many folds and is now the leading multilateral ATM network in the country. As on 30th June’ 21, there were 1,185 members that includes 108 Direct, 1,028 Sub members, 45 RRBs and 4 WLAOs using NFS network connected to more than 2.52 Lac ATM (including cash deposit machines/recyclers)

83. National Financial Switch ( NFS) Salient Features NFS has introduced sub-membership model which enables smaller, regional banks including RRBs and local co-operative banks to participate in the ATM network. NFS has maintained high standards of application and network uptime of above 99.50% which has helped our member banks ensure enhanced customer experience. The Dispute Management System (DMS), has benefitted members with high operational efficiency and ease of online transaction life cycle management in the network apart from being compliant with local regulatory requirements. NPCI has also tied up with International card schemes like Discover Financial Service (DFS), Japan Credit Bureau (JCB) and China UnionPay International (CUPI) which allows their cardholders to use ATMs connected to NFS network. The Fraud Risk Management (FRM) solution is offered as a value added service to monitor transactions (in real time) and to generate alert or decline the transaction in the NFS network

84. National Financial Switch ( NFS) What is an ATM network ? A bank’s ATM are all connected to its ATM Switch. An ATM network is the biggest network formed by connecting the ATM Switches of various banks. If a particular bank is not part of any network and if it does not have any bilateral agreement with any other bank, then its customers will be able to operate at its own ATM’s only. An ATM network bring ‘ Inter-operability’ for bank’s customers by allowing them to be able to operate at ATMs of other Banks as well, which are part of the network.

85. National Financial Switch ( NFS) On - Us : It is a transaction in which a customer is using same bank ATM and ATM card. Example : SBI Card holder using SBI ATM Off –Us : It is transaction in which a customer is making use of different bank’s card and ATM. Example : SBI Card holder using HDFC ATM This Off-us can be transacted if these two banks (ICICI and SBI) switches have a direct connection (bilateral connection) or both are in a network with more banks (say 3,5,10) with a common central switch. On a Larger scale now, all bank’s ATM switches in India, are now connected to NFS, forming a country wide single network, and all bilateral connections have been discontinued.

86. National Financial Switch ( NFS) Any ATM network , including NFS handles off-us transactions of banks only. On-Us transactions are handled by issuing bank only between its ATM and own ATM Switch. ATM Transaction definitions Approved : ATM has dispensed cash either fully or partial amount Decline d : ATM has not dispensed cash . Transaction has been declined by switch and CBS Business Decline : Decline based on the customer behavior or business logic Example : Invalid Account, Invalid Pin, Exceed funds available, Exceeds withdrawal limit etc. Technical Decline : Declines due to technical issues, i .e Hardware, Application/Network/Power failures.

87. National Financial Switch ( NFS) Valued a dded Services Apart from basic transactions like Cash Withdrawal, Balance Enquiry, PIN Change and Mini Statement, NFS also offers other Value Added Services (VAS) on ATMs/CDMs like: Interoperable Cash Deposit (ICD) Mobile Banking Registration (MBR) Card-to-Card Fund Transfer (C2C) Cheque Book Request (CBR) Statement Request (SR) Aadhar Number Seeding (ANS)

88. Aadhaar Enabled Payment System In order to further speed track Financial Inclusion in the country, Two Working Groups were constituted by RBI on Micro ATM standards and Central Infrastructure & Connectivity for Aadhaar based financial inclusion transactions with members representing RBI, Unique Identification Authority of India, NPCI, Institute for Development and Research in Banking Technology and some special invitees representing banks and research institutions which led to the formation of AEPS AePS is a bank led model which allows online interoperable financial inclusion transaction at PoS ( MicroATM ) through the Business correspondent of any bank using the Aadhaar authentication.

89. Aadhaar Enabled Payment System The only inputs required for a customer to do a transaction under this scenario are:- Bank Name Aadhaar Number Fingerprint captured during enrollment . Banking Services Offered by AePS Cash Deposit Cash Withdrawal Balance Enquiry Mini Statement Aadhaar to Aadhaar Fund Transfer Authentication BHIM Aadhaar Pay

90. Aadhaar Enabled Payment System

91. Aadhaar Enabled Payment System Main Objectives To empower a bank customer to use Aadhaar as his/her identity to access his/ her respective Aadhaar enabled bank account and perform basic banking transactions . To sub-serve the goal of Government of India ( GoI ) and Reserve Bank of India (RBI) in furthering Financial Inclusion. To sub-serve the goal of RBI in electronification of retail payments. To facilitate disbursements of Government entitlements like NREGA, Social Security pension, Handicapped Old Age Pension etc. of any Central or State Government bodies. To build the foundation for a full range of Aadhaar enabled Banking services.

92. National Electronic Toll Collection (NETC) National Payments corporation of India (NPCI) has developed the National Electronic Toll Collection (NETC) program to meet the electronic tolling requirements of the Indian Market. It offers an interoperable nationwide toll payment solution which enable a customer to use their FASTag as payment mode on any of the toll plazas irrespective of who has acquired the toll plaza. FASTag is a device that employs Radio frequency Identification (RFID) technology for making toll payments directly while the vehicle is in move. FASTag ( RFID Tag) is affixed on the windscreen of the vehicle and enables a customer to make the toll payments directly from the account which is linked to FASTag . FASTag is also vehicle specific and once it is affixed to a vehicle , it cannot be transferred to another vehicle. It offers the convenience of cashless payment along with benefits like savings on fuels and time as the customer does not has to stop at the toll plaza.

93. National Electronic Toll Collection (NETC) Objectives of NETC To Create composite interoperable ecosystem across the country To increase transparency and efficiency in processing transactions. To reduce air pollution by reducing the congestion around the toll plaza To reduce fuel consumption To reduce cash handling To enhance audit control by centralized user account

94. Unified Payments Interface The Unified Payments interface, an instant real-time payment system and a brain child of National Payments Corporation of India (NPCI) has turned the tables in favour of contactless payments. UPI has become a game changer in short time and got the world wide attention for its framework, simplicity, security and effortless transactions. Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood. It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per requirement and convenience. Unified Payments Interface (UPI) has been termed as the revolutionary product in the payment system .

95. Advantages of UPI Immediate money transfer through mobile device round the clock 24*7 and 365 days. Single mobile application for accessing different bank accounts. Single Click 2 Factor Authentication – Aligned with the Regulatory guidelines, yet provides for a very strong feature of seamless single click payment. Virtual address of the customer for Pull & Push provides for incremental security with the customer not required to enter the details such as Card no, Account number; IFSC etc. Bill Sharing with friends. Best answer to Cash on Delivery hassle, running to an ATM or rendering exact amount. Merchant Payment with Single Application or In-App Payments. Utility Bill Payments, Over the Counter Payments, Barcode (Scan and Pay) based payments. Donations, Collections, Disbursements Scalable. Raising Complaint from Mobile App directly.

96. Benefits of UPI Benefits for Customers Round the clock availability Single Application for accessing different bank accounts Use of Virtual ID is more secure, no credential sharing Single click authentication Raise Complaint from Mobile App directly Benefits for Merchants: Seamless fund collection from customers - single identifiers No risk of storing customer’s virtual address like in Cards Tap customers not having credit/debit cards Suitable for e-Com & m-Com transaction Resolves the COD collection problem In-App Payments (IAP)

97. UPI Architecture

98. UPI Architecture The above diagram shows the overall architecture of the unified interface allowing USSD, smartphone, Internet banking, and other channel integration onto a common layer at NPCI. This common layer uses existing systems such as IMPS, AEPS, etc. to orchestrate these transactions and ensure settlement across accounts. As illustrated in the diagram, 3rd party API integration (merchant sites, etc.) can "collect" payment from “an address” avoiding the need to share account details or credentials on 3rd party applications or websites. Within this solution, payment authentication and authorization are always done using personal phone. Since this layer offers a unified interface, any-to-any ( Aadhaar number, mobile, account, virtual addresses) payments to be done using standard set of APIs.

99. Payment Address Every payment transaction must have source (payer) account details (for debit) and destination (payee) account details (for credit). At the end, before the transaction can be completed, these must be resolved to an actual account number/ID. “Payment Address" is an abstract form to represent a handle that uniquely identify an account details in a “normalized" notation. In this architecture, all payment addresses are denoted as “ account@provider " form. Address translation may happen at provider/gateway level or at NPCI level. Virtual addresses offered by the provider need not be of permanent nature. For example, a provider may offer “one time use” addresses or “amount/time limited” addresses to customers. In addition, innovative usage of virtual addresses such as "limit to specific payees" (e.g., a virtual address that is whitelisted only for transactions from IRCTC) can help increase security without sacrificing convenience. PSPs can allow their customers to create any number of virtual payment addresses and allow attaching various authorization rules to them.