In the not-so-distant future, no one will use cheques. Reserve Bank of India's efforts, to make the RTGS and NEFT processes as common as cheques are today, are paying off, and increasingly, banks are offering their customers innovative payment services that are faster, cheaper and safer for all concerned.

There are still many processes that require manual intervention that can be eliminated to make payments even more faster, cheaper and safer, as a project at ING Vysya Bank demonstrates. Everyday, as customers initiate payments via the Real-Time Gross Settlement and/or the National Electronic Fund Transfer routes, an army of bank employees is needed across the nation to manually match all the requisite information against their banks' databases to ensure that the money changes the right hands. At ING Vysya, an important step in this process is now automated.

An Opportunity
"Our research leads us to believe that we are now the fastest domestic electronics payments processor in the country," said Dharmaraj Ramakrishnan, Head - Core Banking at ING Vysya. "As India rapidly modernises and cheque-based transactions yield to  NEFT and RTGS, our transformational initiative will position us well," he said.

What became an IT-led business transformation actually started off in a small way as an infrastructure capacity augmentation exercise at the planning stage, Ramakrishnan said. "We took it to the next level of business transformation and operational excellence."

In 2008 the bank took stock of its payment platforms even as it saw that the RBI’s persistent efforts to move from cheque-based payments to RTGS/NEFT would soon start getting traction in the market. While this would benefit individuals with small and large transactions alike, the true impact of what Ramakrishnan and his colleagues eventually developed would be seen in the corporate sector, making the bank 'Easy To Deal With' as ING's motto goes.

On the one hand, the bank felt the need to re-architect its domestic electronics payment infrastructure and on the other "we also sensed an opportunity to put together a world-class solution that would offer the best of services to our customers," Ramakrishnan said. What the IT team also did was to de-link volume growth from payment-operations-related FTE growth.

The objective was to build the fastest domestic wire transfer facility in the Indian banking industry.

As banking products and services get commoditized, speed and excellence of service channels become key differentiators, Ramakrishnan said in a background note on the project. India is rapidly modernizing and banking payment services are switching from physical cheques to wire transfer. "By building the fastest domestic wire transfer facility in India, ING Vysya now has the ability to differentiate itself to both retail and corporate customers and be their preferred payment processor," he said.

Money From Information
The big picture is part of the evolving landscape in the payment scenario, and what is it that various banks and financial institutions can do to innovate with the rapid changes happening in the industry today. "This is characterised by the decline of float-based income," said Aniruddha Paul, Head, IT Change Delivery, Ramakrishnan's boss and an enthusiastic champion of various 'change the-bank' initiatives that would put ING Vysya on par with larger competitors for lucrative corporate customers. "The chances of making money out of money are declining and the only way you can make money is by leveraging information," Paul likes to say.

The decline of cheques and other such instruments and the inexorable shift towards electronic payments both in retail banking and with corporate customers is setting the agenda. "Against this background what we find is a sharply increasing numbers electronic transactions in the domestic market with tightening regimes from RBI on the kind of fees that we can charge to the customer," Paul said. For instance three years back there was a much looser regime on the fees that a bank could charge a customer. Now the RBI has clearly laid down the maximum that a bank can charge and there's not much flexibility there, he said.

What ING Vysya is doing then is "building a whole range of payment products and surrounding information systems which can extract, glean, tweak, massage information related to the customer and provide value add to our corporate customers primarily, who are the beneficiaries of these kind of insights and also to various customers," he said.

Payments Programme
The automation of the payee-name validation must be seen in this context. “This was a part of a bigger programme that aimed improving operational efficiencies,” said Dheepak Rajoo, a project manager with the bank’s Programme Management division who helped manage the two phases of the clutch of projects that eventually led to the successful implementation of the automation.

“We had a payments favour to it, with the NEFT RTGS, it had an ECS component, an offline clearing process related to cheque processing, a cheque truncation process -- all of this, we pulled together as a payments programme.”

The NEFT RTGS had two phases -- first replicating the NEFT RTGS payment platform within the core banking operation. This was “primary because there were pain points around processing a finite number of transactions alone, which meant that the business capability itself could be hampered to some extent.” Then they thought “why don't we scrap the payment infrastructure, which wasn't scalable and migrate it into our core banking.” This meant creating the functionalities of an external processing engine withing the core banking, which “enhanced our capabilities to process transactions and to scale up,” Rajoo said.

That was the first phase of the project. This also meant that the capabilities had to be extended to about 480 odd branches pan India. The core banking front end  was an extension of the same platform, called Profile for Windows. “The challenge was  to be able to migrate the functionality by building it from scratch into the platform.”

Automated Validation
“Phase 2 was the more innovative” part of the project, Ramakrishnan said, building the ability for payee-name validation. On inward processes, it was about building processes that would match the name, check the accounts, look for restrictions, match off amounts and execute real-time credit. The result could be that validated customers would get near ‘instant liquidity.’

Typically these projects are what the bank’s IT folks call 'Ops and IT Transformation’ projects. This also meant the project was done across geographies, with people working from Portugal and Poland, and therefore people speaking different languages. This meant that for instance, “we had to use a lot of visual and pictorial aids to get our ideas across with a brilliant programmer from Poland” who had some difficulty with English, Rajoo said.

One of the things they did, was to migrate a payment processing engine that was natively built, called P-Connect. “We mirrored the same functionalities into our core banking system.” To be able to build all the native capability of a legacy software back into the core banking was the objective. “Now we've retired that platform,” he said.

“The external engine had performance issues around scalability, and transaction processing times were extremely high,” Rajoo said. “At one point we had daily monitoring at the CIO level, what was the time for break fix, what was the downtime, how much time was lost because of the performance issues and so on.”

At the time we were thinking about the concept of a payments programme that had multiple projects -- we had a programme level project governance. That helped to always have a dip-stick every month, with the CIO, the COO and everyone else and validated the idea that 'the replacement was the right way to go' and the decision to move this in to the core banking made sense.

Today, most banks use a manual process to validate payee names. Whenever there is an incoming NEFT-RTGS, there will be a backend operations team that will monitor what time the message came in, what is the account number and perform a series of validations. Large banks can process hundreds of thousands of these transactions. Further RBI has stringent regulations on these transactions.

NEFT meant the transaction has to be real-time. That meant that the bank has to keep ramping up its backend as the transaction volume increased, to be able to settle customer transactions the same day. For instance, even if a transfer is initiated at 4 p.m. when the cut off is 5 p.m. the transfer still has to be made the same day. The more the volume the more the number of people required at the backend.

“We automated it,” Ramakrishnan said. “We built an algorithm, which matches off the spelling as well as the way the name sounds.” The algorithm matches off the spelling and gives it a percentage value and also matches off the sound and gives it a value. The operations team can configure the rules that determine the degree of matching for which a straight-through process can be allowed, he said.

Bedrock of Future Innovation
“This particular innovation that we have done, which is building from a domestic electronic payments system would be the bedrock of further innovation that we have to do,” Paul said. In the payments and cash management space on the corporate banking side, the bank has a number of innovative products that it has soft-launched, sold out or is on the verge of completing installations.

For instance, this could be about telling a corporate customer who relies on inward NEFT based RTGSs from the vendor eco-system that “not only will we be able to process his payments the fastest in the country, but we also have mechanisms and systems that allow us to include the invoice details” that the vendor network is using to pay to the bank’s corporate customer.

For example, take a corporate with say 5,000 dealers across the country. The dealer would make a payment and ask for delivery. Under normal circumstances, the dealer would have made a payment, taken the details about the payment, called up the corporate about the payment.

For anyone with a corporate network and a vendor network, “we are offering to the vendor as well as to the corporate customer, make the payment, include some information, passing the information and processing it and informing the corporate  ERP in a straight-through process is something that we can eminently do.

”Otherwise the vendor would have waited for confirmation of the payment, sent it to the corporate, who would have double checked, waited for the invoice details, and then  would have processed the delivery. Clearly there would have been many days gap between the vendor making the payment and the corporate processing the delivery to the vendor.

“With our systems, not only do you make the core payment faster but the surrounding systems kick in to get the information about the payment and automatically post it to the corporate ERP systems in an straight-through process,” Paul said.

Such innovations, along with others such as offering greater security for a payment, are helping ING Vysya Bank go after lucrative large corporate customers who were hitherto more the domain of large multinational banks, he said.

—Harichandan Arakali