IDRBT Sets Up National Financial Switch
The Institute for Development and Research in Banking Technology (IDRBT), a RBI funded research institute, is in the process of setting up a National Financial Switch (NFS).
The switch will facilitate connectivity between multiple bank switches & their corresponding ATMs, and provide an inter-bank payment gateway for authentication & routing payment details of various e-commerce transactions.
Speaking to CXOtoday, Dr. V. P. Gulati, director, IDRBT, said, In India, automated banking transactions are highly underutilized. The NFS will allow for more utilization of the ATM facility. This is pertinent since Gulati predicted that in another three years ATM numbers in the country will be touching 1 lakh.
The switching process starts once an ATM cardholder chips in a card at an ATM, which is read by the concerned bank’s switch. If it happens to be of the same bank, the transaction happens like a normal process. If it is of another bank then the information passes on to the NFS, from where it is routed to the concerned banks switch for validation. Once validated the NFS triggers the issuing bank’s ATM for the cash release.
The NFS infrastructure will allow connecting directly to the individual bank’s switch or through their shared ATM network switches. The hardware has already been installed & the testing is in progress, and it is expected that the pilot project with the chosen banks would be completed by the mid of August 2004.
In fact according to an IDRBT release, member banks (almost all banks have in theory agreed for the membership) have decided that there will be a default inter-change switching fee between the banks, unless they have their own mutual agreements. The current default inter-change switching fee is Rs. 18 per transaction.
The switching activity will be facilitated by Indian financial network (INFINET) with IBM iSeries servers enabled with Euronet’s switching software, installed at IDRBT’s Hyderabad campus. Says Dr. Gulati, The investment in this initiative is approximately Rs 6 crore.
According to Dr. Gulati, a bank would be able to extend their services across the rural and remote regions of the country, as well as abroad. Moreover, in case some banks decide to set up their inter-change switching fees, installing more ATMs would mean an additional source of income.
K.S. Bajwa, DGM-IT, PNB, said, The setting up of a NFS is definitely going to bring down the costs on many aspects. First, many banks might decide not to set up more ATM outlets in places which already has cluster of ATMs and might set them up in places hitherto uncovered. Secondly, ATM transaction fees will be reduced.
Speaking in a similar tone, an HDFC official said, The transaction charges all this while paid to Visa or Mastercard were quite high (Rs. 50-55 per ATM transaction while those by Euronet or FSS is in the range of Rs. 20-25). With an NFS in place this charge is definitely going to reduce.
According to IDRBT, the installed base of ATMs in the country is estimated to be over 15,000 units and is expected to go up to 30,000 ATMs before December 2005 given that private banks — who are among the biggest deployers of ATMs — are proliferating rapidly and more recently, even public sector banks and older private banks have announced aggressive plans to install ATMs.
But are there dangers of allowing ATM access to multiple bank tokens? Gulati says, There is absolutely no danger associated in this system. Each bank has its authentication system in place, which once met in all respects, would allow the next process to commence.
T.K.Prakash, DGM-BPR Team, SBI, said, The interchange between switches is a standardized practice and thus does not have any danger associated with it.
A NFS user group has been formed to deliberate various issues related with the procedures, fees etc., and there is also a steering committee of the top management of banking industry to resolve various issues related with the NFS, which will review the charging policy from time to time.
Euronet is handling the setting up of the infrastructure, which will be owned by IDRBT, and would be operated and managed from its premises at Hyderabad. The Clearing Corporation of India Limited (CCIL) will be the clearing and settlement agency for the switch, which will also facilitate the disaster recovery from its premises at Mumbai.
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