Indian economy is bleeding….not because it has financial problems, but because its economy is heavily dependent on cash. The electronic mode of payment for majority of transactions is still a distant reality. Government of India spends billions of rupees every year on printing and managing currencies and coins. While western countries have already adopted eMoney, Indian payment system is way behind in matching western countries in this area.
Now have a look on following news not too old for the readers:
Traders hoard coins to sell them at a premium
AHMEDABAD: Gupta, and his accomplice Jeetendra Rajai, were arrested last week following seizure of around 7 lakh coins from a truck near Dahod check posts. In Ahmedabad there are over 100 traders who hoard currency coins and either sell them off at a premium to those in need or a few who, like Gupta, smuggle it out of Gujarat…….
Now, Re 1, Rs 2, Rs 5 coins drive jewellery business
Kanpur: A member of a gang involved in making artificial jewellery by melting coins has been arrested with coins worth Rs 1.83 lakh here. The accused, Vinay Singh, was arrested at a police checkpost at Fazalganj area last evening with seven gunny bags containing coins of Re 1, Rs 2 and Rs 5 denominations…..
Dhaka: Detectives early yesterday arrested a Pakistani woman from Shahjalal International Airport and seized fake Indian currency amounting to Rs48,00,000 from her possession. The arrestee is Shameem Naz, 47, of Tendu Mohammad in Karachi. Police claimed she is a member of an international counterfeit currency ring, which uses Bangladesh, Nepal and Bhutan as smuggling routes…
So, what are the lessons to be learnt from above examples?
Government around World are increasingly looking into the ways of reducing cash circulation in the economy. Indian Government through its representative have taken various steps to bring electronic money into the system. But somehow, the results are not encouraging. Through everyday news, we find various instances of fake currencies related conspiracy. Fake currencies are being pushed to Indian market through Bangladesh, Nepal, Bhutan etc.
The whole system of cash based economy is having its own demerits. Common man is not able to differentiate between original and fake currencies and when they approach bank to deposit, they have to face the law of the land. So, what it takes Indian policy makers to quickly move to cashless economy? Economists see following benefits of the cashless economy:
-Currencies and coins are always expensive to print, circulate and store.
-Fake currencies always creates problem as criminal see this an opportunity to counterfeit.
-Cash increases various criminal activities such as black money, illegal trades, smuggling, drug dealers transactions and even bank robberies. Eliminating cash will make it more difficult for the criminals to do business.
-Cashless system will give Governments to control money as per the regulation and they would be able to track virtually all the transaction resulting more tax collection.
As per a recent Washington post article, in Sweden, only 3% of transactions involve cash. Credit and Debit cards are dominant in Sweden payment system. Not only in Sweden, but in most of the developed countries, above 90% of transactions are cashless. Mobile payment is bringing new way of cashless payment system. Other prominent countries are Norway, Austria, Finland etc.
Reserve Bank of India has taken various steps to curb the cash based transactions. However, these steps are not sufficient. We do not want to see when vegetable vendor of the locality will start accepting eMoney, but we want to see when all these vendors including parking areas, taxi-man, city buses, local trains, food joints will stop accepting cash . According to recent estimate, there are about 120 trillion rupees of fake currencies are in circulation in Indian economy. Just imagine the effect of this money on our daily life and the sufferings of common people due to inflation !
When this happens then only Bank robberies, mugging, fake currencies circulation, cash bribery and Hawala based transactions will reduce as they have in Sweden. After all, what is the point in hoarding cash when there is no one accepting them ?
And now Food for Thought for readers of mycardclub.com………
Happy is he who has overcome all selfishness, happy is he who has attained peace; and happy is he who has found the truth. – Gautam Buddha
The big question for chip cards is….Which one is more secure and at the same time cheaper : Contact or Contact less Card? Like all good questions, the question itself is short, but the answer could be complex…and debatable too when most of the markets are migrating to CHIP based acceptance.
First, it is important to understand that there is no such thing in the payment system that is 100% secure. Also consider that security is measured in terms of time and money, and should be offset to risk. It is considered that an object is secure when the amount of time and money an attacker has to spend to exploit the object exceeds the worth of the object.
After having said so, to a large degree, the security depends on the capabilities of the chip, since there are so many variations, cheaper & less secure, expensive & more secure. Manufacturers employ different security mechanisms, which requires specialists to compare before the same is considered good and viable for the market.
If we discuss the cost implication, we have to consider every factors in terms of issuer and acquirer. If cost of the card is more for issuer, the same cost will be passed on to the cardholder and the merchant to some extent. We have also to consider security aspects of the cards in terms of various parameters and guidelines as laid down by EMV standards.
The pricing difference between contact and contact less payment cards is not that wide. However when considering contact less, we have to take into consideration where the customers will be using their cards most often and whether those locations have contact less readers. If the presence of contact less readers in the acquiring arena is low, then there will few places where it can be used, and as such may not be worth compared to investment. However, we know that these days devices with dual acceptance facility is also available. If there is a trend in the market, devices with dual capability can be deployed at a cost to the bank. This will guarantee acceptance of both contact and contact less cards.
I am not talking only about point of sales. It is ATM also, which requires a major upgrade. In most of the market, there are very few ATMs supporting contact less only cards. So if cash withdrawals is a major part of Bank’s business, services will be hit if the Bank decides to issue only contact less cards. Here the choice of dual interface should be considered for ATM also.
An issuer also has to consider the ratio of transactions acquired on own acceptance terminals(on-us) versus the number of transactions acquirer by other institutions(not-on-us). If most of the transactions are on-us, then Bank may have some liberty on choosing acquiring devices, which suits their cards most. In most environments, this is however not the case and acceptance of a card type is determined by acquirer bank based on Central Bank guidelines. Like in India, the Reserve bank allows free usage of cards on other Bank’s ATMs at no cost to the cardholder. So the acquirer banks not providing ATMs capable of accepting all types of cards will be having very less hit.
If chip has both standard EMV contact and contact less, chip costs can increase many fold. Contact less terminals are still a rare in most of the market – and often the merchant don’t know what to do with it and try to ask the customer for signatures where these are not necessary. In that case, merchant training could be another cost to Bank for deploying these types of cards.
Before I start, it should be noted here that Mobile money, which allows cash to travel as fast as a text message, is not an extension of banking. It is a new form of banking, just as mobiles are a new form of communication and it is not in any way a replacement for landlines rather it is an extension of landline phones.
Kenya is a country on eastern cost of Africa bordering Indian ocean, Somalia, Ethiopia, South Sudan, Uganda and Tanzania. This country is having many ethnic groups such as Kikuyu, Luhya, Luo, Kalenjinn etc and have a long history of power struggle, elections marred by violence and corruption in the public sector apart from poverty. In spite of many adversities, this country has presented a great lesson to the World financial sector by successfully introducing micro-payments in the form of M-pesa Mobile money transfer to its citizens.
Current population of this country is estimated around 41 million out of which there are more than 25 million mobile users. In 2007, when m-pesa was started, the population of Kenya was estimated to be 37 million and the mobile population was around 8.5 million.
In 2007, penetration of Banking services was very low in Kenya. Only 38% of the population was having access to some kind of financial services. Out of this, only 19% were having access to regulated banks. This low penetration of banking services has prepared a strong platform for Safaricom to launch mobile money services. Quickly, over a period of 5 years, the concept has been adopted by the masses and it has become most successful mobile phone based financial service in any developing country.
M-pesa agents at work
To understand this phenomenal growth, let us understand the growth of m-pesa over the last 5 years(Figure of 2011 is estimated):
Let us examine this here through graphical representation:
Sustained growth in M‐PESA registration for both subscriber and agent is notable. The amount of financial transactions in terms of amount transferred through the medium is also noteworthy. The recent update is that the total amount circulated in M-pesa network in one month is more than the total amount used on Western Union Money Transfer Globally in one year.
There could be several reasons for the success of M-pesa, but in my opinion following five reasons have worked as main catalyst for the success of M-pesa in Kenya:
A large number of poor and unbanked population.
Comparatively small spread of Bank branches in rural Kenya.
Virtually unregulated operation within the law of the country.
Comparatively large number of mobile users in comparison to total population.
Migration pattern of Kenya is typical of a Rural to Urban resulting split of family for work.
M-pesa has been built on a simple concept of sending and receiving money, but it has brought a huge impact on Kenyan’s life. This system allows them to deal with emergency family situations, better co-ordination of business transactions and has opened a financial system for excluded Kenyans. Only the time will tell us whether the M-Pesa model can be successfully replicated in other countries or not.
AN OVERVIEW
A good network of dealers is very important for the success of Mobile Money Transfer(MMT) project because they are at the frontline of the Mobile money deployment strategy. A good dealer projects a good image of the Company by creating a mutual trust between the subscriber and the Company. In fact, they are the pillars for the success of the Mobile money deployment and all efforts should be taken to incentivising a good dealer.
WHO ARE GOOD DEALERS?
Dealers for the MMT are always made from that group of individuals who are already in any other line of business. After signing with the operators, dealers expect a return if not better than but at least as good as his existing line of business. A good dealer is not only be able to earn a good sum of money by facilitating mobile money transactions to the subscribers, but he also add values to the business by way of providing reliable and quick service, behaving well with subscribers and maintaining adequate float for the transactions.
WHAT IS EXPECTED FROM DEALERS?
Dealers are the face of banking institution and its services. Not only they register and train customers, but they also provide various financial transactions from their location. These people are not only responsible for compliance set by regulators but they also protect the system from possible fraud. Dealers are expected to maintain a cash level adequate to support their daily business and also to play critical role in acquiring new customers, train them for transactions and keep them satisfied with the service.
INCENTIVISING DEALERS FOR BUSINESS GROWTH
Dealers are asked by the Banks to put substantial amount in the business in the form of initial deposits and other capital requirement for branding and advertising etc. Banks encourage these dealers to take active participation in mobile money business and project a reliable picture of the service. Dealers provide these services in return of commission earned on transactions. These dealers register customers, sell airtime, load cash, give cash out etc. Since these dealers are already in some business, the return from the mobile money business should be as good as their current line of business. If the bank pay dealers too little, it will insufficient to support their business. If the bank’s incentive to dealers is too high, it may not support the business model based on cost implication and profit generation. It may also be noted that there could be some revenue loss due to risk involved with the business.
BUSINESS MODEL
It is evident that globally these mobile money dealers do not make much for their services. Dealers of this business have to stock their float cash and electronic value to support their daily business. If there is not sufficient cash, they won’t be able to do cash out. If there is not sufficient electronic value in their mobile wallet, they won’t be able to transfer e-value to customers. Dealers should be smart enough to quickly top-up these values and support their business model over a longer period of time during the day. Once in a day, they can go to Bank (for cash deposit/withdrawal and also for e-value creation) to support their revenue model. They have to understand that by providing good service to customers, they are attracting more customers for their other line of business also.
Commission to these dealers should be such that they can continue to achieve their financial goal and earnings generated should be sufficient enough to encourage them to be loyal with the operators.
Sometimes back, one of the visitors of this blog asked me a question on credit worthiness. I present her question as it is here:
“I just need to develop good credit, what do you suggest?”
While, I was not able to reply immediately to this visitor- due to explanatory nature of this topic, I had decided that I will have to cover this topic very soon. Though, after many months I have started writing again, the following post will cover important guidelines to increase credit score in your life.
The Credit scoring is dependent on various parameters and these parameters vary from bank to bank. Generally banks do not disclose their method of scoring and keep this confidential. Based on my experience of financial industry, I present the following parameters, which are considered by banks to decide credit worthiness of applicants:
Education level of the applicant
Annual Income including income from other sources
Marital status – married / divorced / separated / single
Number of dependents
Residence type – owned or rented
Vehicles ownership – two and four wheeler
Ownership of consumer durables like fridge, washing machine, PC, laptop etc
Type of employment – part time / full time / private / government etc
Area of Residence (locality)
Duration of professional life and duration of current employment
Details of other credit cards ownership
Status of other loans and liabilities
Fixed assets including life insurance policy, fixed deposits
The above list is for illustration purpose only, but banks are not limited to only these parameters. You will be surprised to know that most of the banks do not prefer to give loans to lawyers, policemen and politicians – and this aspect has been contested many times.
All above parameters are not given equal weightage. While some may carry 10 points other could have only 5 points or even 2 points. Most of the banks maintain “automated” system and the data entry operator enters parameter details as per application record. System then calculates final score and data created is further analysed and evaluated by the Processing Manager.
The automated system only provides a guiding platform for the user. The score generated by the system is not final and it can be overruled by the Processing Manager. A Bank can have following policy for application scrutiny:
Scoring pattern(Total 100)
Result
55 and above
Pass for processing
Between 45 and 55
Re-evaluate
Less than 45
Reject
The credit score system is in fact a continuous evaluation system for the users. For example, if manager thinks that a certain category of applicants who are thought to be creditworthy are defaulting, then Bank can change parameter to exclude those people from getting credit card. Vice-versa, if certain good applicants are not getting cards due to parameters settings, the scoring pattern could be rechecked again.
So my suggestion is that “You can also score good credit, provided you have filled all major details in your application inclusive but not limited to above parameters”. Remember, a good credit card holder will always score good credit at the time of application.
The term “KYC” or Know Your Customer is known to almost every banked person of the world. This word is widely used to maintain records of customer as per set guidelines. It involves making reasonable efforts to determine true identity and beneficial ownership of accounts. Through this process, the bank not only checks identity of potential and existing customers, but also checks other background such as source of funds, the nature of customer’s business, reasonableness of operations in the account in relation to the customer’s business etc.
This process helps the banks to manage their risks prudently. The objective of the KYC guidelines is to prevent banks being used, intentionally or unintentionally by criminal elements for money laundering. KYC is applicable to the customers of all the Financial Institutions. The Central Banks of almost all the countries issue guidelines to financial institution to keep up to date records of customers throughout the life of relationship.
KYC has three components – Identity, Signature and Address (ISA). While identity remains the same, the address and signature may change and hence the banks are required to periodically update their records. Banks does this update on yearly basis. As a responsible citizen of the country, it is our duty to support our financial institution in updating their records.
Banks create a customer profile based on details about the customer like social/financial status, nature of business activity, information about his clients’ business and their location, the purpose and reason for opening the account, the expected origin of the funds to be used within the relationship. Also they may collect information such as details of occupation/employment, sources of wealth or income, expected monthly remittance, expected monthly withdrawals etc.
By adhering to proper KYC, the Central bank expects the Banks to perform following:
* Customer Acceptance Policy
* Customer Identification Procedure
* Monitoring Customer Transactions
* Risk Management
In view of the global terrorism, Know Your Customer policies are becoming increasingly important globally to prevent identity theft, financial fraud, money laundering and terrorist financing. Such is the impact of this process on financial system that even small companies are employing this process to know their agents, vendors, consultants, distributors etc apart from their customers.
So this new year, let us resolve that everyone will submit KYC details to Banks much before they ask for this.
Almost all the active card users must have undergone through the distress of losing the credit cards and looking for the ways to immediately block the cards to stop card misuse. During my professional experience in the card industry, I have found that most of the transactions take place within two hours after losing the card and in most of these cases; cardholder are not even aware that he has actually lost the card. Situation becomes more serious, if the customer is not having card number and Bank’s customer care number to report the incident to Bank.
I have also gone through similar situation. However, I managed to block all my lost cards within 15 minutes of the incident. This had happened overseas and luckily, I was carrying details of all my card numbers and customer care number with me. Here are some precautionary measures you can take to safeguard your card from unauthorised transactions.
♦ Never leave your cards unattended. You should always know the whereabouts of your card and keep checking the physical presence of card regularly.
♦ It is not wise to carry all the cards in your wallet when going out. Some cards, which you do not use regularly, can be kept in your locker at home.
♦ Do not keep cards in your shirt pocket. It can easily slip out when you bend to do something.
♦ Take photocopy of all your cards’ front image on one single sheet and then write Bank’s customer care number besides them. This could be very useful when you lose your card.
♦ If you have not registered your mobile number for transaction alerts, my suggestion is that, do it now. The alert messages can be very helpful to prevent unauthorized transactions.
♦ Same suggestion I will give for registering your email Id for transaction alerts. And these alerts are not going to cost you anything – this service is offered free by Banks.
♦ Regularly check card’s billing statement as distant possibility is that you may receive some transactions even if card is always in your possession.
Now, following are for your immediate actions, when you have noticed that you have lost your card.
If you have kept details of your lost cards with you:
♦ Do not panic as this is the time for some real actions.
♦ Take out information of your card(account) number and call Bank’s customer care number and give them following details to block the card:
1. Card number.
2. The date on which you have lost your card.
3. The last transaction date you remember with amount.
♦ After reporting through phone, write a letter to your Bank giving all the details of your lost card and take acknowledgement of the letter for your record.
♦ Report your card lost incident to police and give copy of FIR to your Bank also.
If you do not have details of your lost cards:
♦ Check Bank’s website and find out customer care number. You may also call your branch manager to ask for customer care number.
♦ Call Bank’s customer care number and give them your name to find out your card details.
♦ Customer care executive will ask you some questions to verify your identity.
♦ Ensure to report the matter to police and also send a copy of FIR to Bank with your letter.
♦ Also, unless you recover your lost credit card from some trustworthy locations like home or office, it is always advisable to get the card replaced by your Bank.
Remember, it is you, who is in control of all your financial transactions. And why you will allow a situation where all your financial planning goes haywire only because you did not take action on time?
The term “Liability Shift” is related to EMV(Europay, Mastercard, Visa) migration project, which was started in beginning of year 2000 in most of the regions of the World. In EMV migration project, there were two parties – One Card Issuer and another Card Acquirer. Region-wise, the Payment Network System such as Visa and Mastercard made it compulsory for all the card issuers and card acquirers to migrate to EMV system to make the card acceptance point more secure and safe. At the same time, the industry was already reeling under various fraud incidents and effort was to reduce the frauds by more than 90%.
Liability Shift
During such initiative, it was found that in some regions, Card Acquirers had adopted EMV system earlier than Card Issuers. In this scenario, while the acceptance points (POS terminals, ATMs etc) have become more secured by adopting the new EMV technology, most of the cards were still not converted to chip based EMV cards. In some regions, there was situation just opposite to this. That means cards were EMV compliant while the acceptance points were non-EMV compliant.
Liability Shift is applicable to those parties (Issuer/Acquirer) for all the losses related to frauds incurred by card payment transactions, who are non-EMV compliant. This means Visa/Mastercard no longer protect fraud related chargebacks to non-EMV compliant parties.
This is as simple as…
- If issuer is non-EMV compliant and acquirer is EMV compliant, Issuer will not be having any rights for fraud related chargebacks against the acquirer(merchant).
- If the issuer is EMV compliant and acquirer is non-EMV compliant, cardholder will not be liable for any chargeback, if he claims that he did not participated in the transaction.
Impact of this could be as follows:
1. This will affect the profitability of the business of those parties who are non-EMV compliant because they will be absorbing the liability of chargeback. Also, there may be non-compliance penalties from Visa/Mastercard.
2. Migrating to EMV-compliant is a cost to the acquirer as all the acceptance terminals as well as back-end system such as software, host, network etc requires major investment to bring the change for compliance.
3. For issuer, the chip based cards are much more costly than magnetic stripe cards and cardholders are not ready to pay for the cost of the card as most of the regions have accepted the policy of issuing cards at no cost to end users. So, for issuer, it will be an investment without any immediate return.
Credit Card transactions can be returned to the merchant’s bank through a process called chargeback. Chargeback is a post-transaction process where the issuer of credit card charges a portion or entire amount of the disputed transaction to the merchant’s bank(acquirer) when cardholder raises dispute with his bank.
A chargeback can occur for a number of different reasons. Some of the more popular reasons used by the issuer bank are as under:
unauthorised transaction – where no card was present or the cardholder’s permission was not granted;
non – receipt of documents requested – where the merchant’s bank does not supply required information pertaining to the disputed transaction;
goods not received – informed by the cardholder with details;
cancellation of recurring transaction – where a merchant ignores a request from the cardholder to cancel a recurring transaction;
another payment method used – effectively paying for the goods or service twice;
services not rendered – merchant unable to provide agreed goods or services.
It should be noted here that whenever a chargeback is initiated by the issuer bank, acquirer bank’s account is debited by the payment settlement system(e.g. Visa and Master card settlement system) with the transaction amount. This debit remains with the acquirer bank incurring loss to them till the time they represent the case to the issuer bank or if the mistake is found to be at merchant’s end – the acquirer bank recover the transaction amount from the merchant.
So, next time as a cardholder, if you are not satisfied with the items you have purchased from a merchant, you simply have to write a dispute letter to your bank requesting them to chargeback the transaction. Always remember to provide full details of the transaction giving them the invoice copy, date of transaction, delivery details etc along with the reason why you want to dispute the transaction. Al those details which supports your claim would help the Bank to act on your behalf and give you the credit for the disputed amount.
The information contained in mycardclub.com is for general information purposes only and does not constitute professional financial advice. Please contact an independent financial professional for advice regarding your specific situation.
By reading this blog you acknowledge full responsibility for your actions with respect to any loss or damage caused or alleged to be caused directly or indirectly in connection with the blog.
truck near Dahod check posts. In Ahmedabad there are over 100 traders who hoard currency coins and either sell them off at a premium to those in need or a few who, like Gupta, smuggle it out of Gujarat…….
-Currencies and coins are always expensive to print, circulate and store.
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