RBI says all payment systems to remain closed on 1 April 2017

The Reserve Bank of India (RBI) has said all payment systems will remain closed on 1 April. It is a change from its earlier directive asking banks to remain open on the first day of the next fiscal beginning 1 April.

However, there is no change with regard to the payment channels, including RTGS and NEFT, being operative on a normal working day during 25 March to 1 April (including Saturday, Sunday and all holidays).

“On reconsideration, it has been decided that all payment systems will remain closed on 1 April, 2017,” it said.

The RBI said it will issue a separate broadcast message in this regard through respective system to member banks. It also clarified that the special clearing operation on 30 and 31 March remains unchanged. On 23 March, the RBI had instructed banks about conducting special clearing exclusively for government transactions on 30-31 March.

1 April is an annual closing day of accounts for banks and they remain shut.

Source : MINT

Latin America and Its Fintech Fervour

This is a multi-part series written for a leading global e-publications called LetsTalkPayments . To view the detailed post click on the links below

The Phoenix Rising

The first part of the LATAM Fintech Series explores the region’s challenges ,inspite of which it is becoming a leading destination for expansion and investment for the world with Fintech leading the space and playing a pivotal role in economy building. 

Argentina, Brazil, Chile, Mexico and Venezuela make up the Big 5 Economies of the region comprising over 25 countries across Central America, South America and Caribbean. While Colombia is a fast-growing FinTech market followed by Peru, Panama is increasingly finding itself become a test market for North American startups. Not to mention, Peru is Latin America’s fastest-growing economy. The Big 5 still remain the leaders and any socio-politico environmental change in them tips the trade economies for the entire region. Read on.

Age of the Distruptors

The second part of the LATAM Fintech Series explores the homegrown disruptors that are making LATAM the next Fintech destination and changing the local economy by inviting investment and changing how locals do business ,

LATAM is being eyed as a destination for expansion and investment by the rest of the world. The homegrown startups have some of the most ingenuous offerings designed to keep in mind local challenges in the banking space and drawing much applause and consumer base. Here is a quick look at the top 10 disruptors in the region . Read on

Keep tuned in for upcoming posts on this series and share your feedback on what else you would love covered.

Who pays off the Technical Debt for Fintech Startups ?

‘Technical Debt’ – Making sense of the Metaphor 

In 1992 Ward Cunningham – the man who created the first Wiki coined a metaphor called ‘Technical Debt’ . The term later went on to be called ‘Code Debt’ and sometimes ‘Design Debt’ . Extremely revered in software engineering circles , Cunningham was seen as a pioneer for design patterns and extreme programming. When he coined the word , he was writing financial software and tried to explain the misfeasance through the metaphor of debt to his boss . He went on to explain that attempting to write program without full knowledge to achieve short term results or perception is like taking a loan. Just as you pay interest when you take a loan , you have to regularly spend extra efforts for the correction of the temporary shortcut taken and likened this effort to interest. Malfeasance is when you do not repay interest just as you skip this refactoring of known fallacies in the system. You enjoy the short term benefits of what the loaned principal brings in without a long term plan to repay the interest.

Soon enough the term caught up with many developer communities and became a key programming concept used to define the extra development work that arises due to a temporary short term solution or quick fix applied in comparison to implementing the best overall design approach or architecture.

Inducing a Debt is most often Circumstantial than Intentional

The continuous race of Early-to-Market -Startups are often forced to induce technical debt due to business pressures . In businesses where problem solving and innovation sometimes supersede the technical relevance or skeletal architecture , the perils of scale and the magnitude of debt remain unmeasured but real.

Disruptive technology and the startups that ride on it live with the problem of rapidly evolving technology and standards around it – be it security , coding practices , communication frameworks , development and hosting platforms et all . Most of what is done is on a best-of-my-knowledge basis .

Do and See Approach – is the only way to implement since most often there are no guidelines to be followed. Code refactoring is inevitable is such situations. The blockchain startups are a good example of this – Early entrants had little or no formal documentation available and security standards were theoretical and no established test suite still exists. With time , concepts are understood better , frameworks come into being and and the risk of debt reduces.

Technical leadership and code ownership is important in FinTech. Sometimes lack of knowledge , documentation or collaboration among the team can be crippling as the codebase is bound to grow. Most great companies started out with an effective program by a great developer but to achieve scale or expand this very codebase has to be modular.When VCs look to invest , it is important to assess that the architecture is scalable and technical leadership is aware of what limitations exist and exactly when to refactor to scale.

So , Who really pays off a Technical debt ?

When a new CIO takes over or a new VC firm evaluates investment , it is important that technical debt footprint is assessed because really , it is they who land up repaying this debt.

Traditionally when banking was about in-house application building , the cost of technical debt was born by the bank. As we moved towards outsourced services , the service provider or service vendor bore the cost through piecemeal code refactoring . Then came along COTS (Commercial Off the Shelf) solutions and things got tricky. The risk of technical debt induced due to the urgency of one client was passed on to all other product clients as well. The value of debt began rising for the product company exponentially as it multiplied by the number of product installations. The CIO of the product company then becomes completely responsible for this. If there are VC’s or additional investment sought at such point it simply passes on the debt to the VC.

Software Asset or Liability ?

Most argue , that passing on debt is a good thing just like it is with rolling monetary debt , but how many VCs will agree? The objective is to accelerate growth for these firms and seek favorable exits . However , the investor must understand that sometimes strengthening the foundation at the cost of expansion can mean long term results.

With new tools for scanning and assessing software assets, quality of legacy footprint can now be gauged and they also help to determine what it will cost to eliminate this debt. Quantifying the technical debt in order to understand, contain, and mitigate the debt, as well as decide how to prioritise next steps can be done through tools.

Quantifying the Debt

Accumulated technical debt can lead to decreased efficiency, increased cost, and extended delays in the maintenance of existing system and the very first step starts with assessing the size of it. There are some tools to help assess as seen below –

CAST is a software that can hel to detect and correct errors in its core systems that could carry significant structural risk and thereby allows one to arrive at the monetary impact.

Figure 1 : Source CAST

Some companies offer plugins to your existing code. One such example is the Sonar plugin which can uses a proprietary formula to give an approximate a dollar figure to assess the value of debt

Figure 2 : Source SONAR

There are also consulting companies such as Cutter Consortium who do an unbiased Debt Valuation and Assessment exercise.

Deloitte is conducting an extensive study on technical debt reversal and predicts this to be one of the top digital trends in the recent years. Back in 2012 , the firm had predicted that $3.61 is the technical debt incurred for every line of code written within a typical application whereas globally it estimates the cost of debugging software is around a whopping 312 million USD.

Conclusion

FinTech Startups will protect precious seed capital and take shortcuts to build software and to play the catch up game or focus on innovation . Venture Capitalist firms will inherit technical debt in the entire lifecycle . It is important however , to understand the depth of the damage as well as the cost of reversal to truly measure the strength of the company and establish valuation.

Mobile payment platform Chillr to launch UPI

India’s first multi-bank mobile payment platform Chillr is all set to launch its Unified
Payments Interface (UPI) facility by March-end, which  will enable customers of nearly
45 banks to make payments on a single platform.Sony Joy, CEO and Co-Founder, Chillr, estimates around 1.50 crore customers to be on-board this platform by the end of 2017-18. “Our annual run-rate (transaction) is also expected to go up from $1 billion (around Rs. 6,600 crore) now to $12 billion (nearly Rs. 80,000 crore) per annum.” said Joy

For more details read on 

 

Driving Financial Inclusion through India Post

Any institution that works to establish financial inclusion takes on the role of becoming an emissary of trust – trust in the economy . To establish the first level of trust for the unbanked  is one of the biggest challenges across third world economies. Postal networks have often been the most effective tools of establishing inclusion and yet remain the least accredited  and overlooked.

A Global Need for Financial Inclusion

The Global Findex mentions that out of bank regulators in 143 jurisdictions,  67 percent have a mandate to promote financial inclusion. 4 International organizations, including the G-20 and the World Bank, have either formulated strategies or are in the process of doing so to promote financial inclusion. In recent years more than 50 countries have set formal targets and ambitious goals for inclusion. A study by the Universal Postal Union (UPU) states that 1.4 million postmen go door-to-door daily establishing a daily 2 million odd contact points across the world. Postal networks therefore become the strongest channels of inclusion globally and India has one of the most ambitious projects at hand.

India’s Financial Inclusion Agenda

On the 15th Of August 2014 , Prime Minister Narendra Modi announced a large scheme for inclusion under the Pradhan Mantri Jan Dhan Yojna . The number of accounts opened under the scheme reached 255 million (including 57 million zero balance accounts) by November 2016 and 15 million more accounts were opened post the Demonetization announcment. The amount of deposits rose to about 665 billion Indian Rupees (10 billion USD) and over 19 lakh householders availed the overdraft facility of 2.56 billion (US$38 million) by May 2016.

Banking with the Post Office

Globally , 50 percent of adults have an account at either at a financial institution , post office or both institutions, 12 percent have an account at the post office as well as a bank, and 3 percent (6 percent of all account holders) have an account at the post office only.

Roughly 28% of the world’s adults use postal services for payments (for example, invoice payments and social benefits) and remittances. According to UPU research 1.5 billion people worldwide currently go to post offices for these types of transactions, but only 1 billion have accounts. One strategy, adopted by posts in a number of countries, is to use cash-based services as an introductory product to account-based services and savings. Following that model, people who use posts to access certain financial services without an account could potentially move from informal to formal savings.

In the mobile financial services ecosystem, we can identify three groups of actors: users (individuals, businesses, governments), providers (banks, post offices, MNOs, MFIs, etc.), and support services for providers (FinTech, agent networks, switch, etc.).41 Postal operators across the world have been playing a role both as direct providers of mobile financial services and as support services for other providers .

Below is an adaptation from a comprehensive SWOT Analysis done by the Universal Postal Union as part of the Global Panorama on Postal Financial Inclusion 2016 to assess the role of Postal networks in digital financial services –

SWOT.png

A Mammoth Challenge for the World’s Largest Postal Service

Established in 1854 ,India Post today has about 150,000 post offices in the country today ,  almost growing to seven times its size since the Indian Independence in 1947.India Post has been battling a number of challenges to establish its inclusion programs – shortage of trained staff , cost of implementation and a credit hungry rural India. With no lending programs as part of its roadmap , the post office has fallen behind in its customer acquisition to a number of rural regional banks who grew in the light of the PMJDY .

India Post has undergone multiple makeovers since its formation. Apart from mail delivery , India Post has been servicing India as a business logistics service provider and a trusted financial advisor . Its  services range from basic financial services such as provision of savings bank accounts , recurring and time deposit schemes as well as saving schemes for senior citizens. There are short and long term investment options through the NSC schemes . It plays a key role for the thousands of migrant workers who send home money through a tie up with Western Union for its International Money Transfer Scheme and also with MoneyGram for payments from the US into India. Money Orders , Instant Money Orders help money to be wired across the country. India Post takes on the support role for small businesses and infrastructure service providers in the form on a collection agent and its logistics arm.Yes ,  India Post enables payment collection from the remotest of areas through its many-to-one solution which allows collection of money (telephone bills, electricity bills, examination fee, taxes, university fee, school fee etc.) on behalf of the subscribing biller . The collection is consolidated electronically using India Post’s web based e-Payments solution and the payout is made centrally through cheque from a specified Post Office of the biller’s choice. Since demonetization, India Post has helped hundreds of thousands deposit up to Rs. 32621 crore ($4.75 billion) in the two weeks since 500 and 1000 rupee notes were withdrawn.

A  Gameplan to Scale

A 4,909 crore (US$730 million) project for computerization and networking of 1.55 lakh post offices across the country is being currently implemented by the Indian government which is aimed at providing better tracking , more relief to staff and digitization of operations. It also involves core banking and insurance  solution implementation and upgrades . Project Arrow aimed at upgrading technology and service was initiated in 2008 and since then garnered lot of appreciation and investment from the government. Further investments have poured in ever since .

The current government has plans to use the digitization exercise for data registration services via its postal network to enhance digital reach and establish phase 2 of financial inclusion. Prime Minister Narendra Modi has set up a Task Force to leverage the postal network in India to enhance the role of India Post in financial inclusion, among other services and is expected to submit its report by year-end.

India Post Payments Bank (IPPB)  has rolled out its pilot services in the end of January 2017 in Ranchi and Raipur. The bank targets to have 300,000 postmen trained to take on the additional  role of payment bank correspondents .By September 2017, 650 bank branches will sprout across the country and 1000 existing ATMs of India Post will be transferred to IPPB . The paid up equity of the new bank is Rs 800 crore, of which the government has already infused Rs 275 crore.

The stereotypical image of a postman riding down a dusty lane on a rickety old bicycle carrying letters delayed by weeks if not months has changed . Over the last 15 years of India’s economic uprising , the red post boxes across the country which eventually turned into spitoons and disappeared mark the end of traditional post. India Post has held on strong through the years of transition continuing to make  a deep impact in India’s financial inclusion journey and is now ready with an army of digital-savvy banking and mail correspondents who are poised to take it to the next level .

Blockchain Economy – Embracing the Algorithm

As we struggle to fathom how a decentralized uncontrolled currency may be part of tomorrow’s real world economy there is a paradigm shift in how we perceive money with the onset of blockchain and the bitcoin in banking today. What’s baffling is that the entire control and intelligence lies embedded in an algorithm created by someone who remains unknown , unquestionable and now somewhat invincible.

Relying on algorithmic decisioning of how much currency should exist  in the economy

The algorithm releases rewards for maintenance of the general distributed ledger. Every time one uncovers a new block , bitcoins come into being. The rate of block creation is adjusted every 2016 blocks to aim for a constant two week adjustment period (equivalent to 6 per hour.) For every 210,000 blocks mined the rewards get halved. In other words , the number of bitcoins generated per block is set to decrease geometrically, with a 50% reduction every 210,000 blocks, or approximately four years. If the four- year reward halving continues, the value reaches zero for rewards once 21 million .The decreasing supply algorithm was chosen because it approximates the rate at which gold is mined.  There is also the theory that the total mined Satoshis (Smallest unit of a Bitcoin or  0.00000001 BTC) will reach the maximum length of a 64 bit floating point number and hence the limit,

These miner rewards are an amazing way to ensure the chain goes on. “Why would anyone sit and solve complex problems on the chain” , asked a friend  long ago even before the bitcoin prices soared ? If I told you, all the produce on the farm is yours if you water the farm , you would weigh the value of the produce vs your time , effort and resources involved and make a profitable decision. Miners across the world today , are doing just that !

Controlled supply of currency with complete transparency and decentralization in the economy

These finite 21 million bitcoins may not be in circulation at the same time or be spendable units . There may exist a case where we lose bitcoins on the blockchain due to a loss of private key getting corrupted on a device or one losing the private key address altogether. So just like you risk losing physical currency from a wallet today , losing a node could very much mean that we have lost money and it went out of circulation for good.

In the real world someone may find the lost wallet and the money may still be in circulation and in no way can an individual be powerful enough to take money out of the economy. He can of course hoard and keep undeclared amounts of it in his Swiss account. Where money lies, is always transparent on the blockchain .

Also, some bitcoins in circulation can be used to hold programmable assets that are not of the nature of a currency of exchange i.e., it could hold a unit of energy not money or any other. Being able to differentiate within the public distributed ledger, the actual amount of embedded money in these bitcoins may be difficult to monitor unless someone already has a solution that. The currency that comes into circulation is entirely agnostic to the hands that exchange value or the turn of trade – demand and supply.

Dilution of Power Equations through Logarithmic Equations

The  block chain , in a way also dilutes roles of power. Imagine , a kingdom of yore long before the printing press , where gold coins were the only medium of exchange. Some of the gold , they decide to use as ornaments or to worship the gods and this holds value but cannot be traded and some they use for trade. The king’s treasury takes a consensus how it wants to spend each unit – for warfare or welfare. In this case will gold behavior be inflationary or deflationary?

People say Satoshi conceptualized the Bitcoin as a deflationary currency to control the problem of consensual spend or beat insipid taxation. No money when being conceptualized would be designed to be deflationary. And , there is a huge debate on whether it is actually is. However , I am no authority to comment on that entire chain of thought , yet. Satoshi , probably never conceptualized the blockchain or bitcoin as money. This was probably the first use case to be adopted that leveraged the unending possibilities of crypto transmission.

The possibilities on the blockchain are endless. Its how you perceive and implement. It’s a bit like religion , you know. You try to incarnate it into its most tangible existence or you adopt it in principle as a way of doing things that we will all eventually align to.