Micropayments originally came into being around the 1990s . As the name suggests , this refers to extremely small amounts being transferred online through web protocols.
At that time online payments were expensive and the challenge was to make micropayment feasible for billing for online media publishing which meant restricting the cost to a bare minimum . While Paypal defined a micropayment as an online payment of less than 5 GBP , Visa defined it as less than 20 AUD. However , IBM Micropayments that came about around 1999 enabled payments less than one cent.
This could well have been the revolution that enabled e-commerce. However , research was stopped across IBM , Compaq but the link below traces the roots to todays payment wallets , API based payments and commerce pull push to all research around Micropayments.
While the term has stayed on , and we still refer to small payments as micropayments , the term itself refers to a league of patented technology and research done around reducing the cost of online payments.
Just when we thought chequebooks and cheque processing was on its way out , we see a unique use case where the traditional banking instrument uses new age disruptive technology such as blockchain to combat cheque fraud.
Cheque fraud accounted for nearly 77% percentage payments fraud in the US alone in a survey conducted in 2015 by AFP . Almost globally the largest revenues impacted in payments fraud are via cheque fraud.
Emirates Islamic, one of the leading Islamic financial institutions in the UAE, announced that it will introduce blockchain technology into its cheques as a fraud prevention measure.
Earlier this year , Emirates NBD had announced the ‘ Cheque Chain’ initiative . There will be a Quick Response (QR) Code on each leaf which enables validation at the source through self service or at the presenting bank . The QR code will be registered on the blockchain so that once the cheque leaf has been presented and cleared under the bank’s ICCS technology , the record will be maintained on the blockchain for auhenticity .
With ‘Cheque Chain’ , Emirates Islamic becomes the first Islamic bank in UAE to undertake this initiative to enhance security in the popular payment method.
Emirates Islamic announced its plan to issue new cheque books carrying a unique QR (Quick Response) code on every leaf, along with a string of 20 random characters to make new cheques being issued compatible on the new platform.
This is an extremely smart move to combat the ever increasing costs of image based clearing and instrument handling coupled with archival and storage of the information . It will be interesting to see how cancelled cheques are handled on the platform and in the long run how the total cost of ownership for institutions span out with blockchain .
The Union Bank of India had reported a case of cyber attack on one of its nostro accounts last year on the 21st of July. At that point , the amount remained undisclosed and the breach was said to have happened from an email attachment opened by one of its employees.It was a phishing attack. An email with the handle @rbi.org.in had an attachment -a zip file with a .xer file.While one employee fell pray, some were smart to report it as suspicious. However, it was too late.The malware had entered the bank.
A sum of $171 million had been debited from its nostro account with Citibank New York .Since Swift recon happens only the next day once the nostro statement comes in , the bank’s treasury department realised only the next day.
The money by then had been moved to accounts in two banks in Cambodia—the Canadia Bank Plc and RHB IndoChina Bank Ltd, besides the Siam Commercial Bank in Thailand, Bank Sinopac in Taiwan, and a bank in Australia. These funds were routed by Citibank New York and JP Morgan Chase New York, which hold UBI’s foreign exchange accounts.
SWIFT maintains a neutral stand in the investigation primarily initiated by UBI and insists no breach at its end.However , it is high time that SWIFT looks at its loopholes -recon delays , lack of built in fraud early warning mechanism and an AI poweredneural network enabled clustering system that can track such suspicious activity.
With blockchain heralding a new age of cryptographic security and unit level transparency the bank’s must also look for alternatives to the wire transfer monopoly and it’s inherent loopholes.
Since its inception around 1984 ,the Electronic Bill Presentment and Payments (EBPP) business has seen a continuous evolution in terms of business models , technology components and services offered by bank . Governments have taken key initiatives to ensure that clearing houses and regulatory bodies support the growth of homegrown EBPP Models. It has emerged as a key change-driver in the way corporates manage the end to end billing and collection cycle and paved way for a new wave of consumer-centric digital payments and product innovation .
Biller Direct Model – The biller presents his bill data on his website and the consumer logs in and pays .In this model , the biller assumes primary responsibility of presentment of an interactive bill on his website .He may create variations such as email based bill summary notifications with embedded hyperlinks. It becomes the onus of the biller to ensure timely bill presentment and meeting the challenges around the same in terms of formatting , translating , user experience .The biller also has to integrate with a bank gateway or alternative e-commerce channel facilitate payments .This model although most effective is an expensive proposition and sees huge scope of improvisation around cost control and shared services.
Consolidator Model – A single website where the consumer can go to a single place to pay his bill across multiple billers and view statements across his accounts. The biller sends the bill summary to the consolidator and almost outsources the collection cycle to the consolidator .The consolidator conducts follow ups and maintains aggregated statements for the consumer.
Thick Consolidator Model is where the bill payment is facilitated within the same website.
Thin Consolidator Model is where the consumer is redirected to the biller’s website to pay.Often billers who are active participants in the biller direct model do not want to refrain from giving the consumer the benefit of the consolidator model .This is where the think consolidator model seeks adoption.
Internet Post Office Model – Where a single hub becomes the one stop shop for all consolidation and payments. This is where the biller , consumer and the financial institution log on to present ,pay and aggregate. This is a model that is emerging and gaining fast adoption.
EBPP Technology Components
If we look at key technology components that facilitate the Biller driven EBPP cycle of raising debits, they can be broadly classified into the following
EBPP Portal – Billers can upload and view outstanding receivables , check statements , communicate with customers .This is coupled with the back office EBPP systems that sit within the bank.The portal could be a bank ,biller of IPO style website.
EBPP Connector – A robust 24×7 connectivity software between the bank and the corporate that ensures secure bi-directional communication and allows the corporate to send across billing data in a convenient format.
Pre-Processing Hub – Once the data is transmitted, the files are parsed , data extracted , validated and sent to downstream systems .
Mandate Management Software – Holds written or electronic authorization for billers to debit consumer accounts with appropriate restrictions of date , frequency and amounts
ACH Processor – Holds mandate authorizations and can connect with the regional or national clearing house seamlessly and send out debit requests , refunds and cancellation instructions
Lockbox – Retail or Wholesale lockboxes that may be physical or electronic in nature. Acts as a collection centre for the bank.
The Value Proposition
Significant cost reduction for billers as it allows companies a chance to move towards paperless billing. Eliminating paper automatically reduces the risk and cost of handling , dispatch and archiving. Manual processes that cause significant delay in the bill collection cycle are also automatically minimized.With scale the benefits of cost become more evident and over time it has emerged that high volume billers such as utility and insurance companies tend to benefit most from EBPP.
Customer experience and loyalty is also a key factor why most companies invest in web technology or integrating with the most in-demand consolidation models or schemes.
With the consumer now being able to self service himself by viewing and paying bills at a time and method convenient for him , it increases the overall customer satisfaction . With embedded tools to view , compare , analyze , drill down and forecast billing , usage and saving the consumer gets value added services and a far more advanced experience from the paper based billing. Moreover, standardization of the experience and multilingual interaction ensures that success model in one country is rapidly replicated in another transcending global barriers , technology hurdles and sometimes can also be extended to meet customer support challenges through a centralized model. It also opens up a world for communication that is leveraged for targeted customer segment based marketing.The consumer is far more empowered today as he can pay, inquire ,view and compare bills on the go with EBPP now finding its way into digital payment methods and devices.
There are statistics that state 75% billers experienced savings by converting to EBPP and 17% consumers vouched for overall satisfaction scores for their billers went up.
Increasingly ,central banks have shifted focus to create fraeworks for bill presentment and payment to come under a nation centralized authority that ensures standardization , interoperability and access to billers and cosumers. After Saudi Arabia’s success , India is the next to launch its Bharat Bill Payments System. More about it in another post.