Banking tech body plans payment solutions entity

The Institute for Development and Research in Banking Technology, a wholly owned subsidiary of the Reserve Bank of India, is planning to float a domestic payments solutions company on the lines of global players.

According to sources, some of the commercial banks will pick up stake in the proposed venture. The entity is likely to be set up within six months and its equity base will be about Rs 10 crore (Rs 100 million).

RBI established the IDRBT in 1996 as an autonomous centre for development and research in banking technology. Its vision is to become a leading institute of the financial community on technology issues.

Explaining the rationale behind setting up the payments solutions company, the sources pointed out that when both the acquiring bank and the issuer bank were local players there was no need to route the domestic transaction via international entities such as Visa International and MasterCard.

Bankers, however, clarified that the global card majors might not be totally phased out and they might re-enter the market through a different model.

IDRBT had earlier set up the national financial switch (NFS) to facilitate connectivity between an individual bank's switches and its ATMs and an inter-bank payment gateway for authentication and routing the payment details of various e-commerce transactions, etc.

NFS will be utilised for the purpose of the proposed payments solutions facility. In bilateral or multi-lateral sharing arrangements of ATMs, one bank acts as the settlement bank and at the end of the day, it intimates other user banks about the fees need to be transferred to the settlement bank. In this case, the participating banks will pay the fees to the NFS for sharing the network.

"Visa and MasterCard have their own niche markets but if they want to consolidate their position they must make their fees more competitive. The proposed arrangement will rationalise the pricing system and benefit the customers," said ABN Amro Bank's vice-president and chief technology officer, Pankaj Phatarphod.

According to the sources, Visa International and MasterCard earn fees in the range of Rs 2.5-4 for every transaction routed through their network. On an average, about two million such transactions take place daily.

The installed base of ATMs in the country is estimated to be close to 20,000 units and it is expected to go up to 30,000 by the end of the financial year.