JAIIB PPB Paper-2 Module-C Unit 3: Alternate Delivery Channels

JAIIB Paper 2 (PPB) Module C Unit 3: Alternate Delivery Channels (New Syllabus) 

The IIBF has recently announced updates to the JAIIB Exam 2023, including changes to the syllabus and exam format. Candidates will now be required to complete four papers, with Paper 2 (Principles & Practices of Banking) covering Unit 3: Alternate Delivery Channels. This unit is particularly crucial for candidates, as it will significantly impact their performance in the exam.

To assist candidates in understanding the topic, we will provide all the necessary details related to Unit 3: Alternate Delivery Channels of JAIIB Paper 2 (PPB) Module C: Banking Technology. We strongly recommend that candidates refer to this article and utilize our Online Mock Test Series to enhance their understanding of Foreign Currency Accounts for Residents and other related aspects.

Candidates must comprehend each unit in the syllabus, including the Marketing unit, to excel in the JAIIB Certification Examination 2023 and establish a successful career in the banking sector. This unit is of great importance in the banking industry, and candidates must prepare thoroughly.

Automated Teller Machines (ATMs)

The committee headed by Dr. C. Rangarajan recommended setting up ATMs in India.

Convenience of ATMs To Customers

  • 24 × 7 access availability
  • Less time for transactions (less queue)
  • Privacy in transactions
  • Any branch/anywhere banking enabled
  • Acceptability of debit/credit cards across multiple bank ATMs
  • Other services enabled in ATMs in addition to cash dispensing includes clearing cheques deposits, balance enquiry, cheque book requisition, mini statement, utility bill payments, etc.

Convenience of ATMs To Banks

  • The cost of setting up ATMs is lower than setting up a branch. The cost of the transaction is also less.
  • The routine transactions through ATMs relieves the bank staff for more productive work.
  • ATMs serve as the crucial touchpoint for cross-selling of banks’ products.
  • Enables a bank to display products on the screen and serves as a medium for publicity of the bank.
  • Less hassle in handling cash.

ATMs Models In India

  • Online
  • Offline
  • Networked

Cash Dispenser: CD is an ATM without a depository and intended to serve the customers for making cash withdrawals only.

Networking of ATMs:  For optimizing the cost of investments in ATMs, banks joined in small clusters to share their ATM networks. Indian Banks’ Association (IBA) was the first organization to set up a shared payment network system (SPNS) or SWADHAN network of ATMs of its member banks in Mumbai. The network went live on 1 February 1997.  The Objective behind the SWADHAN network is to provide 24 hours, 7 days a week electronic banking service to the customer of a member bank anywhere in the city of Mumbai. The customer is free to carry transactions at the ATMs of any of the member banks located in the neighborhood. To facilitate interoperability among these clusters at the national level, IDRBT initiated the process of setting up a  ‘National Financial Switch’ (NFS) to facilitate apex level connectivity of other switches established by  banks. IDRBT had been providing ATM switch services to banks in India through NFS. NPCI (National Payment Corporation of India) took over NFS operations from IDRBT on December 14, 2009.

White Label ATMs

  • ATMs, which are set up, owned, and operated by non-banks, are called White Label ATMs (WLAs). As of 1 Jan 2022, Four Non-bank ATM operators (India1 Payments, Tata Communications Payment Solutions, Hitachi Payment Services, and Vakrangee) are authorized to install and operate WLAs.
  • The Reserve Bank of India (RBI) released the first guidelines in June 2012 to introduce “White Label ATMs” to expand banking services in the country. White label ATMs (WLAs) do not display any bank’s branding/signage, and hence they are called White Label ATMs.
  • The WLA Operator would not be entitled to any other fee from the issuer bank other than the “Interchange” fee payable to the “acquirer” bank under the present bank-owned ATM scenario.

Brown Label ATMs

  • ‘Brown label’ ATMs are those Automated Teller Machines where a service provider owns the hardware and lease the ATM to banks.
  • The service provider takes the responsibility of maintenance of the ATM, whereas the sponsor bank takes the responsibility of cash management and connectivity of ATM to the banking network.

Cash Recyclers

  • Cash Recycler machine is a self-service terminal that lets one deposit and withdraws cash.
  • They ensure the genuineness of currency. Counterfeit notes are recognised.
  • Cash deposit is made with debit card.
  • Cardless transaction up to Rs. 20,000/- per day

Kiosk Banking

  • ‘An electronic kiosk in a Bank is a small electronic/computerised Box/structure that helps users inquire, print, transact.
  • These kiosks are deployed in places with high foot traffic like airports, malls, etc. These kiosks are essentially unmanned.
  • Banks can offer hassle-free and customer-friendly banking services through Kiosks by leveraging Technology.

Pass book Printing Kiosks

  • A Passbook Printing Kiosk is an automated kiosk wherein a customer can print his passbook independently. Normally these passbook printers are of self-service in nature.
  • PBK fetches the transaction details through this magnetic strip and prints them on the passbook. Customers can use this facility at any time of the day on a 24×7 basis.

Cash Deposit Machine

  • A Cash Deposit Machine (CDM) allows customers to deposit money using a debit card or account number. One of the remarkable features of CDM is that the Account is credited instantly at any time of the day on all days of the year.
  • As per RBI guidelines, customers can deposit only up to Rs. 49,950 per account per day if the PAN number is not recorded with the Bank. To deposit cash for more than Rs. 49,950 per account per day, the PAN number should be registered with the Bank.

Bulk Note Acceptors

  • BNA will work round the clock and accept bulk deposits, sort, count, and instantly credit the amount to the depositors’ account. After the successful launch of BNA, banks have come up with the requirement of BNA recyclers. One can use BNA machines for cash deposits and withdrawal of cash.
  • Reserve Bank of India subsidized the cost of BNAs up to 50 per cent in urban areas and 75 per cent in semi-urban areas.

Security Control Of ATMs

  • RBI prescribed baseline Cyber Security Controls for ATM Switch application service providers to all regulated entities.
  • The guidelines would require implementing several measures to strengthen the deployment process, continuous surveillance; implementation of controls on storage, processing and transmission of sensitive data;  building capacity for forensic examination; and making the incident response mechanism more robust.
  • RBI also mandated the regulated entities to implement the following control measures for securing the ATMs. (a) Implementing security measures such as BIOS password, disabling USB ports, disabling auto-run facility, applying the latest patches of operating system and other software, terminal security solution,  time-based admin access, etc.  (b) Implementing the anti-skimming and whitelisting solution.  (c) Upgrading all the ATMs with supported versions of the operating system.

Electromagnetic Cards

Credit Card

  • A credit card is a small plastic card around 8.5 cm by 5.5 cm. It contains the name and the account number of the holder embossed on it. In addition, the date up to which the card is valid will also be embossed and a specimen signature panel on the reverse.
  • The cardholder has the option to pay the entire amount as soon as the card account is debited, or he may choose to pay only a certain percentage of the amount debited, and he gets a credit to the extent of rest, i.e. he can pay it in monthly instalments later and incur interest charges.

Charge Card

  • A charge card is an electronic payment card where the cardholder is not charged interest but needs the user to pay the balance due in full upon receipt of the statement, usually every month.
  • It has no preset spending Limit.

Debit Card

  • A bank-issued card allows users to access their funds to pay for merchandise.
  • Here the funds are immediately debited to the cardholders’ accounts.

Smart Card

  • It is a physical card that has an embedded integrated chip that acts as a security token. They use encryption to provide protection for in-memory information.
  • They have memory chip or microprocessor with processing power to serve many different applications when coupled with smart card reader.
  • EMV Cards: EMV stands for ‘Europay, MasterCard and Visa’, a global standard for inter-operation of integrated circuit cards (IC cards or “chip cards”) for authenticating credit and debit card transactions. It is a joint effort to ensure the security and global interoperability of chip-based payment cards.

NFC based Contactless/Tap & Go Cards

  • Near Field Communication technology supports electronic data exchanges for short distances of about 10 cm. An NFC enabled smart card can transact wirelessly with an NFC enabled POS.
  • These cards, known as contactless or Tap and Go cards, can be used at POS terminals of merchant establishments ATMs by simply tapping the card. Transactions made through contactless cards are faster and more secure.

Member Card

  • This is used exclusively by the members of a club or a chain of hotels. For example, the Taj Card is a card issued by the Management of Taj Group of Hotels to be used by patrons. The cards are for use in their hotels only. Similarly, there are many other types of cards where the usage is exclusive to the members of group.

Biometric Security Features Of Cards

  • One of the primary features of the smart card is security to prevent card-related crimes and frauds. Chips for smart cards are not publicly available.
  • The smart card has different pockets of storage of cash for different types of transactions. There may be a unique PIN for each pocket, meaning that a smart card may have multiple PINs.
  • Apart from multiple PIN facility, there are other Biometric security features available with the smart card such as Dynamic signature verification, Fingerprint verification, Voice recognition system, Hand geometry, Retinal pattern verification, Vein recognition, Visual recognition.

Pre-Paid Payment Instruments (PPIs)

Pre-paid payment instruments facilitate purchase of goods and services, including funds transfer, against the value stored on such instruments.

The prepaid payment instruments permitted in India are classified under three categories, viz.

  • Closed system payment instruments
  • Small Prepaid Payment Instruments or Minimum Details Prepaid Payment Instruments
  • Full-KYC Prepaid Payment instruments.

Closed system payment instruments

  • These PPIs are issued by an entity for facilitating the purchase of goods and services from that entity only and do not permit cash withdrawal.
  • The issuance or operation of such instruments is not classified as a payment system requiring approval/authorisation by RBI and are, therefore, not regulated or supervised by RBI. E.g., a prepaid card/wallet issued by a particular book store or restaurant for use only at its outlet(s).

Small Prepaid Payment Instruments

  • These are issued by banks and non-banks after obtaining minimum details of the PPI holder.

Small Prepaid Payment Instruments

  • These are used only for purchase of goods and services. Funds transfer or cash withdrawal from such PPIs shall not be permitted.

PPIs upto Rs.10,000/- (with cash loading facility)

  • Bank and non-banks shall be permitted to issue such PPIs after obtaining minimum details of the PPI holder.
  • Maximum loaded amount: Rs. 10,000/- in a month, and Rs. 1,20,000 in a Financial Year
  • Maximum outstanding: Rs. 10,000/-; Maximum debits: Rs. 10,000/- in a month.
  • To be converted to fully KYC-compliant PPI within 24 months of date of issue.
  • This category of PPI shall not be issued to the same user in future using the same mobile number and same minimum details.

PPIs upto Rs.10,000/- (without cash loading facility)

  • This has the same limits as above but cash loading facility is not there.

Full – KYC PPIs

  • These are issued by banks and non-banks after completing Know Your Customer (KYC) of the PPI holder. Video-based Customer Identification Process (V-CIP) can be used.
  • These are reloadable in nature. The amount outstanding shall not exceed Rs.2,00,000/- at any point of time.
  • To provide facility of ‘pre-registered beneficiaries’ by providing details of their bank account. Issuer must set limits for transfers to these beneficiaries as per the risk profile of the holder, but not exceeding Rs. 2,00,000/- per month per beneficiary.

Specific Categories of PPIs

Gift PPI

  • Maximum value: Rs. 10,000/- each Gift PPI.
  • Shall not be reloadable.
  • Cash-out or funds transfer are not be permitted.

PPIs for Mass Transit Systems (PPI-MTS)

  • To be issued by MTS operators after RBI authorization.
  • Should contain Automated Fare Collection application related to transit service.
  • It shall be reloadable.
  • Maximum outstanding at any point of time shall be Rs. 3,000/-
  • Cash-out or refund or funds transfer can not be permitted

Key Operational Regulations Of PPIs

Issuing/ Loading/ Reloading

  • PPIs may be issued as cards, wallets, and any other form. Paper vouchers are not allowed.
  • PPIs issued in India and shall be in INR only and no interest can be paid on balances.
  • Cash loading is limited to Rs. 50,000/- per month subject to overall limit.

Validity And Redemption

  • Validity: Minimum one year from the date of loading/ last reloading
  • To inform customer by SMS, e-mail, etc. recurringly during 45 days window before expiry.
  • PPIs with no transaction for one year to be inactivated, and informed to RBI.

Deployment of money collected – Non-bank Issuer

  • Outstanding balances to be in an escrow account with one or two scheduled commercial banks.
  • Issuer that is member of Centralised Payment Systems of RBI shall maintain a Current Account with RBI.
  • The day-end balance in the escrow account shall not be less than the value of outstanding PPIs and payments due to merchants. Credit to escrow on issue, load/ reload must be latest by day end of the transaction.
  • No interest can be paid on the Escrow Account, However, ‘core portion’, of the balance can be transferred to an interest bearing account.

Other Aspects Of PPIs

PPIs under co-branding arrangements

  • Non-bank PPI issuer to seek on-time RBI approval for issuing co-branded PPIs.
  • Co-branding partner: Indian company, Government department/ ministry, a bank.

Cross-border transactions

  • Full-KYC PPIs issued by AD-I banks can be used in cross-border outward transactions. If in card form, these should be EMV Chip and PIN compliant.
  • Ceiling: Rs. 10,000/- per transaction; Rs. 50,000/- in a month for outward transactions
  • For credit from cross-border inward remittances- Ceiling: Upto Rs. 50,000/- for a remittance, balance to be credited to bank account.

Electronic Banking

Anytime-Anywhere Banking

  • Access to the account through the Alternate delivery channels is secured through measures like Password, PIN, OTP, Biometric authentication etc. With the introduction of payment systems like IMPS UPI and making NEFT/RTGS 24 × 7, any time banking payments across Banks also became a reality.

By utilising remote banking facility, corporate customers will be able to get the following services: 

  • Getting their current balance or getting their statement of accounts for any pre-defined period
  • Ordering cheque books
  • Ordering/transferring intra-bank and inter-bank fund transfers
  • Instructing stop payments of cheques
  • International remittances
  • Opening letter of credits
  • Treasury services to manage their working capital requirements
  • Customized loans and lease agreements for the purchase of equipment, machinery, etc.
  • Portfolio analysis

Tele Banking

  • By using a telebanking facility, customers can dial up the Bank’s designated telephone number, which is connected to the Bank’s server. By dialing his identification number, the customer will be able to avail of some banking services using a secure PIN.

Some of the services that can be availed with telebanking facility are:

  • Balance Inquiry,
  • Last few transaction details
  • Request for a cheque book online
  • Stop payment of any cheque
  • Initiate fund transfers to self-account
  • Generate ATM PIN
  • Get the interest certificate
  • Get the Deposit Interest Certificate
  • Update mobile information or mail ID

This facility is now being served through Voice assistants/Bots using Artificial Intelligence to help the Customer in availing banking services.

Internet Banking

  • It removes the traditional geographical barriers as it could reach out to customers of different countries/legal jurisdictions.
  • It has added a new dimension to different kinds of risks traditionally associated with banking, heightening some of them and throwing new risk control challenges and risk perceptions.
  • It poses a strategic risk of loss of business to those banks who do not respond in time to this new technology efficient and cost-effective delivery mechanism of banking services.
  • Internet is the Backbone for popular Social Networking Sites. Nowadays Banks are using these Social media networks for customer engagement through advertisements, quizzes and offers, apart from offering banking services.

Mobile Banking

  • Banks are permitted to offer mobile banking services (through SMS, USSD or mobile banking application) after obtaining necessary permission from the Department of Payment and Settlement Systems, RBI.
  • Use of mobile banking services for cross border inward and outward transfers is strictly prohibited.
  • MPIN are critical for use of mobile banking services. For MPIN generation several modes should be provided through: an option in own ATMs; USSD menu; internet banking; MPIN mailers; and Industry level common website.
  • Fund transfer services from the accounts of their customers can be provided for delivery in cash to the recipients, including non-account holders.

The disbursal of cash can be facilitated at ATMs or through business correspondents. The conditions for this are:

  • Cash out: Maximum amount – Rs. 10,000/- per transaction.
  • Velocity cap to be decided by banks with Maximum amount – 25,000/- per month, per beneficiary.
  • Disbursal of funds at the agent/ATM: Only after identification of the recipient.
  • USSD (*99#) based mobile banking service was introduced by NPCI to take the banking services to every common man across the country. NPCI later launched Unified Payments Interface (UPI) with member banks. UPI allows customers to send and receive money using a unique ID (UPI ID) or payment address. UPI is now available for non-internet based mobile devices in the form of dialing option *99#.
  • All mobile transactions should be encrypted end-to-end except transactions up to Rs. 5000/-, which can be facilitated by banks without end-to-end encryption.

Electronic Commerce

  • E-commerce include a higher degree of personalization, round-the-clock advantage, fast and flexible execution, immediate customer reaction, and reduction in operating cost.
  • E-commerce poses new challenges for all market participants. Banks face competition from non-banks and near banks, which because of the low barrier to market entry, can play much more easily in the electronic payment services market than in the markets for traditional bank services.

Neo Banking

  • A Neo Bank is a Fintech firm that provides digital and mobile-first services like payments, debit cards, money transfers, lending, and more.
  • Since Neo-Banks don’t have physical branches, consumers can create their accounts from their mobile devices from the comfort of their home in a matter of minutes, by accessing the designated mobile application.
  • In India, Neo-Banks partner with Banks to provide a gamut of banking services. The likes of Jupiter, Fi, Niyo, and RazorpayX are currently working in partnerships with traditional banks.

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