Is NEFT 24/7 Made To Competing With UPI? Why??

Several Founders, Co-Founders, CXO Bankers, CXO Fintech professional & people who participated in the ePanel discussions:

• Mr. A P Hota, Former Managing Director & CEO of NPCI
• Mr. Probir Roy, Co-founder, Paymate
• Mr. Sunil Kulkarni, Joint Managing Director, Oxigen Services (India) Pvt Ltd
• Mr. Vishal Anand Kanvaty, Senior Vice President – Products and Innovation, (NPCI)
• Mr. Neeraj Chandra, Head of Operations, Abu Dhabi Commercial Bank
• Mr. Shashank Chowdhury, Former Managing Director -India, Infinite Zero
• Mr. Ramasubramanian S, Application, Transformation, Management and Operations Head, DXC Technology
• Ms. Priyanka Subhadarsini, Payments Business Analyst, Standard Chartered GBS
• Mr. Abhishek Mody, Associate Director-Payment & Digital Initiatives, IDFC Bank
• Mr. Sony A, Head – Digital, South Indian Bank
• Mr. Ratnakar V, Deputy Vice President- Rural Lending & Payments, Axis Bank
• Mr. Abhishek Arun, Vice President, Paytm
• Mr. Paresh Rajde, Founder & Chairman at Suvidhaa Infoserve Private Limited
• Mr. Vikas R Panditrao, Co-founder, Forum of Industry  and Academic Knowledge Sharing (FIAKS)
• Many other CEO/CXO Bankers & Fintech professionals on FIAKS Forum requested to remain anonymous

With NEFT becoming 24X7 one of the FIAKS community member puts forth these concerned questions;-

Question 1: Don’t you think we are creating multiple clearing & settlement processes within the country? Is there a need?

Question 2: Aren’t we making NEFT, IMPS, and UPI competing with each other. Isn’t this waste of money? Or is it a back-up plan in case one fails?

Firstly, let’s understand the fundamental difference between NEFT and IMPS/UPI:

• NEFT is not instant transfer and is hourly RBI Net settlement for each bank. This means the credit in the customer’s bank account as well as receipt of funds by receiving bank takes place at the same time.
• Whereas, IMPS/UPI, on the other hand, is instant credit to the customers’ bank account but inter-bank funds settlement happen 4 times in a day on banking days as per NPCI settlement cycle. If someone sends money through IMPS/UPI and customer goes to ATM, withdraws cash and NPCI settlement cycle time is still 5 hours away, then for 5 hours receiving bank is out of cash by this amount. This never happens in NEFT.
• NEFT & RTGS are used by all including B2B & B2C and do not have the maximum amount of restrictions. Settlement for RTGS is real-time, while settlement for NEFT is in batches. However, for banks NEFT is easier to manage than RTGS aftermarket/office hours (24×7).
• On the other hand, IMPS/ UPI is basically P2P or C2B modes, have amount restrictions, the settlement is in batches and they use the same infrastructure.
• NEFT / RTGS is used by businesses for their payment settlement whereas IMPS is mainly intended for retail customers need and not for businesses.
• For larger ticket size transactions NEFT is the preferred channel, UPI- for small value, IMPS – for medium value, RTGS – for very large value.

 Some of the significant implications of 24×7 NEFT:

1. Customer convenience- People can transfer larger sums of money to anybody.
2. Businesses can pay at their convenience. It will drive them towards using Internet Banking.
3. It is possible to do a 5 day week for banks.
4. Cheque as a mode of payment can be done away with.
5. The Government can receive funds 24×7 and banks don’t need to remain open till midnight every 31^st March.

Criticism aspects of NEFT becoming 24×7:

The way NEFT is processed and IMPS is processed is entirely different. All banks have planned their infrastructure, software, and resources based on this. Now a sudden change in the payment system to this extent will create an issue for customers, staff, and reconciliation. For example, in finacle based banks, NEFT will be handled through MQ services and IMPS will be handled by ISO 8583. MQ services will not function when you are doing EOD(End of Day), BOD(Beginning of Day). It seems to be an adding additional effort/cost to make NEFT 24×7. If the bank wants to add value to clients they can internally convert payment mode from NEFT to IMPS and process transaction during off-hours provided customer gives the mandate channel as convenient to the bank at least during the transition period but the only challenge will be a maximum cap on IMPS. One doesn’t know plain vanilla extension of time 24×7 with no other change will take place with nearly 50 half-hourly settlements being further netted and settled on Monday morning which is a crude way of doing, but possible!

Does RBI aim to make NEFT real-time? A detailed framework is yet awaited

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