The key concluding events for commerce are invoicing and payments. As nations and regions with countries who share soft borders embark on building transformative infrastructure for invoicing and payments, they have to think of all the related use cases to support, both the current ones as well as the future ones.
Two key use cases that are driving the e-payment infrastructure modernization are
(a) Electronic Bill Presentment and Payment (EBPP) and (a) Faster Payments. EBPP has existed ever since NACHAi enabled bill payments using the internet around 2001. However, we are now witnessing the launch of Faster Payments systems across the globe, and these are taking over as the key e-payments infrastructure. As per an FIS Reportii , 54 countries are currently at different levels of maturity. Interestingly, as Faster Payment is rolled out, Electronic Bill Payment (EBP) becomes one of its key use cases, other use-cases being single immediate payment, forward dated payment, standing order, etc.iii Countries are fostering adoption of Faster Payments through the EBP use case, e.g. in Singapore, the first applicationiv for FAST is highlighted as Bill Payment. In this regard, a new service has emerged for requesting payment from the consumer, namely Request-to-Pay (R2P)v . Two events, R2P and immediate payment in unison are transforming the concluding event of commerce. In certain geographies, R2P and immediate payment are amalgamated to form Collect-Requestvi ; however, this is not a widespread phenomenon.
It is evident that as EBPP and Faster Payments grow in popularity, so would fraud on these channels. “Pull payments” are typical in card payments and hence the fraud and risk management solutions of cards are designed accordingly. However, Faster payments use account-to-account (A2A) transfers and are largely “push payments”. The existing fraud and risk management (FRM) solutions in the market are seldom geared to address fraud for “push payments”. Hence, as e-payments transform, the FRM needs to be re-imagined as well, needing to cover both A2A and card based payments, especially as the initiation of payments could be from diverse point of payments – mobile, web-site, QR code, POS, ATM, ACH, IOT, etc.
The transformative infrastructure of e-payments needs to support faster payments, EBPP and other future enablers in unison, with an overarching protection via omnichannel fraud and risk management solution.
The Big Picture
In any infrastructure, transformation initiates the need to balance the existing and the new way of doing business and also necessitates a way to migrate from the past to the new systems. Such services would already be there in the market but in a highly fragmented and non-interoperable way. Hence, any change needs to adopt a top-down approach with a larger perspective so that the dividends are rich and holistic.
The India Story
When India embarked on the path of transforming its digital infrastructure, it created the India Stackvii ; and dedicated the “Cashless Layer” for electronic payments. The key enablers for the Cashless Layer were (a) Unified Payments Interface – which was rolled out in 2016, (b) Bharat Bill Payment System (BBPS) – which was rolled out on 2017 and (c) Enterprise Fraud and Risk Management (EFRM) system – which was commissioned in May 2019. All the three infrastructural platforms integrate with each other to provide value where the sum is much more than the individual parts.
The Reserve Bank of India (RBI) initiated a study of the existing GIRO system across the globe in 2013viii and designed a suitable model for India which later was implemented as BBPS. It is interesting to note that the features adopted were balanced between automated and agent-based, keeping in mind the demographic profile of the country.
UPI and EFRM had to be imagined ground-up as similar systems did not exist.
Today, the UPI-BBPS-EFRM trio is running successfully with massive adoption, and is truly transforming the way electronic payments and commerce is functioning in the country.
UPI 1.0 serviced the need for common push and pull payments for P2P and P2M (M being typically small merchants) space. This propelled the convenience of payments to a large extent. However, following use-cases remained unaddressed which were addressed in UPI 2.0:
1. Overdraft – linking to an overdraft account
2. Pre-authorise payment – one-time
3. Invoice verification – verify the amount, merchant credentials
4. Verified QR-code Merchant – verify that the merchant is an UPI merchant
Points 1 and 2 are for convenience and flexibility but the 3 and 4 were for security reasons which increased the customer confidence. The pre-authorised recurring payment remained un-addressed but for a certain security reason. The UPI adoption is going through nascent phase hence risk of unintended recurring mandate might impact the consumer. However, the capability exists in the platform and can be implemented later on when the service matures.
BBPS 1.0 eased the bill presentment and payment across the nation. At this moment it is going through adoption though the volumes are 3x compared to initial estimates. Still, the volumes are very low compared to all possibilities.
The potential of different modes of faster payments from UPI when combined with the bill presentment and payment capabilities of different types of billers and merchants of BBPS creates a multiplier effect that brings in huge efficiency in commerce. What ISO20022 has done by providing data elements to link invoice with payments, UPI’s invoice verification has achieved it in faster payment space. All of this will reduce the reconciliation mismatch drastically and unlock good funds for the merchant.
Turning to fraud and risk management, worldwide we see there are very few FRM products to cater to frauds in Faster Payments. Unlike cards, the non-revocable finality of faster payments necessitates fraud management upfront. If we look deeper we see that the need for omnichannel FRM is on the rise and hence, when India decided to build FRM, it did not restrict it to faster payments, but covered all the channels that touch consumer funds – accounts and cards. This top down perspective of FRM was key and this approach is on its way to help prevent fraud in more comprehensive manner.
The value of convenience of money movement is driving adoption as well as increasing the risk of fraud. While UPI and BBPS brings in the convenience EFRM counters the risk. As these transformative systems dance in unison it would create opportunities for innovative use cases that will propel the commerce and benefit all the stakeholders.
At RS Software, we take pride in partnering with the National Payments Corporation of India (NPCI), having won the RFPs to build the transformative infrastructures – UPI, BBPS and EFRM.