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Fin-Tech: History of Payment System

The document provides a history of payment systems, beginning with barter systems and evolving to modern electronic payment methods. It discusses the development of coins, paper money, cheques, and electronic funds transfer as payment instruments. It then summarizes major Indian payment systems regulated by the Reserve Bank of India, including RTGS for large-value real-time payments and NEFT for lower-value batch processing payments. The key differences between RTGS and NEFT are also outlined.

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67 views22 pages

Fin-Tech: History of Payment System

The document provides a history of payment systems, beginning with barter systems and evolving to modern electronic payment methods. It discusses the development of coins, paper money, cheques, and electronic funds transfer as payment instruments. It then summarizes major Indian payment systems regulated by the Reserve Bank of India, including RTGS for large-value real-time payments and NEFT for lower-value batch processing payments. The key differences between RTGS and NEFT are also outlined.

Uploaded by

nand bhushan
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© © All Rights Reserved
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FIN-TECH

History of Payment System


History of payment system
HISTORY

 When people or businesses enter into economic transactions, i.e. buy and sell
goods and services, the value thereof needs to be settled.
 Before the concept of money came in, the settlement was through exchange of
goods and / or services and it was called the barter system.
 With the concept of money, the sale and purchase of goods and services are being
effected or settled by payment of money.
 The ‘money’ was in early days the precious metals like gold and silver. Later, the
governments issued coins made of these precious metals as money; still later, the
paper money, the currency, became the norm as the money. Thus people settled
their economic transactions by paying in currency notes and coins.
 As the banking system evolved, it became easier, safe and even remunerative to
keep one’s money in a bank account and it became still more easier and safe to
use ‘transfer of money in bank accounts’ for making payments for the economic
transactions.
Continued…..
 For effecting this transfer of money in bank accounts, a payment instrument
was needed to instruct the bank to effect that transfer.
 This instrument was the cheque for a very long period.(From 1826 onwards)
 Thus a system consisting of the cheque as the payment instruments and an
infrastructure around the cheques consisting of 3 the drawee bank, the
drawer bank and the cheque clearing houses came on the scene and were
known as the payment systems.
 With the developments in the information and communication technology,
world over, different kinds of payment instruments and innovations in the
instruments and the payment systems evolved.
Barter System
Token System
Written promises
Virtual Money
Chip cards
Mobile Commerce
What is a payment? What is a payment
system?
A set of instruments, procedures and rules for the transfer of funds
 between or among participants, as well as the entity operating the arrangement
 typically based on an agreement between or among participants and the Financial Market
Infrastructure
 transfer of funds is effected using an agreed-upon technical infrastructure”
Legal Basis
 Payment and Settlement Systems Act, 2007
 BPSS the apex body
 No payment system to operate without authorization
 RBI as the regulator and supervisor
 Legal basis for Netting
 Dishonor of electronic debit instruction on par with Cheque
Directives Issued
 Settlement and Default Handling Procedures
 Dispute Resolution framework
Payment Systems –
HV Close /
Directives on
Settlement,

Major Milestones
Defaults and
Disputes

2008

RTGS CTS / NECS /


2005 Mobile / NPCI /
Act
Notification

IT ACT DPSS /
2002 NEFT /
NFS
EFT /
IDRBT
CCIL

MICR 1994
INFINET

ECS
1986
12
Today’s Payment Frameworks
 Today we can boast of a strong retail payments framework in the country
comparable to that of any advanced country, and perhaps even better than
some of them in terms of the variety and efficiency.
 Various types of payment instruments exist to meet the requirements of
different users in different circumstances – bank accounts, cheques, debit
and credit cards, prepaid payment instruments, etc.
 There are various systems to meet the remittance requirements of users
depending upon their time criticality and cost sensitivity – National
Electronic Funds Transfer (NEFT), Immediate Payment Service (IMPS),
Aadhaar Enabled Payment System (AEPS) and recently Unified Payments
Interface.
 The need for making bulk and repetitive payments is met by systems such as
Electronic Clearing Service (ECS), National Automated Clearing House (NACH)
and Aadhaar Payment Bridge System (APBS).
RTGS- REAL TIME GROSS SETTLEMENT
NEFT- NATIONAL ELECTRONIC FUNDS
TRANSFER
WHY RTGS/NEFT
RTGS/NEFT IN INDIA (RBI)
ESSENTIAL INFORMATION NEEDED
TRACK THE REMITTANCE TRANSACTION
RTGS vs NEFT
 There is no cap on the minimum value that can be transacted via NEFT. RTGS
system however only process transactions of a value starting from Rs. 2 Lakhs
and above as it caters to gross settlements.
 While the NEFT system settles transactions in batches, RTGS option transfer
funds in real time.
 Using NEFT if a transfer order is received after the defined cut-off time, the
transaction will have to wait until the next clearance to be fulfilled whereas
RTGS transactions are processed continuously throughout the RTGS business
hours.
 In RTGS, since the transaction happens real-time and the fund settlement
takes place in the books of the RBI, the payments are final and irrevocable. In
case of NEFT too there is no facility for giving stop payment instruction if the
transaction has been initiated by the bank

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