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How Remittances and Payment Channels Affect India’s Economy

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In recent years, international remittances have grown into a trillion dollar industry and as the cross border remittance industry continues to grow, so does the domestic payments industry. This increasing trend is occurring in all major international remittance receiving countries, especially in South Asian countries such as India, Bangladesh, Pakistan, the Philippines, Indonesia and Vietnam. 

In most of the cases when a cross border remittance comes in, it ends its journey through the domestic payments channels. For example, let us assume, Mr. X sends money from a foreign country to his mother. He normally chooses the most convenient method for the Cash-In and the most convenient method for Cash-Out. From the sending side, the most convenient method is generally an online money transfer. At the receiving end, it is generally a deposit into the bank account of the beneficiary (in this case the mother of the sender). In the above case the domestic payments methods are first used to park the funds into the wallet or online account of the sender. Funds are then delivered to the bank account of the intermediary bank and are transferred into the bank account of the beneficiary thereafter. This push from the bank in-between and the beneficiary bank also forms part of the domestic payment systems mechanism, which is primarily IMPS or NEFT or RTGS. This is part dependent on the amount of money sent. What we see here is that the increase in volumes of international remittance also injects funds into the domestic payments basket.

The way the payment instruments for remittances work is still evolving. Under the NEFT (National Electronic Fund Transfer) format, the payment systems work under batch processing mode. The NEFT window is open Monday through Friday, 8:00 AM to 7:00 PM hourly cycle. On alternate Saturdays, it works like a normal day as above. This mode is closed on Sundays, as well as 2nd and 4th Saturdays. This system does not have any transaction limit constraints and the banks settle between themselves at the end of the day. The RTGS ( Real Time Gross Settlement) works even faster and the funds are settled between banks on real time basis, however, the minimum amount for such transfers is INR 200,000. The IMPS (Immediate Payment Service) is a 24 X 7 service, that can be accessed via smartphone at any time. This has revolutionized the payments structure of India and is one of the most advanced payments systems in the world, however, this also has a transaction limit and of INR 200,000 per transaction.

The funds can be received in a bank account or any other mode. Some other modes can be Remittance Cards or a Wallet. A wallet can be an online wallet or a mobile wallet. The RBI is progressively working on making the wallets or cards available to cash payout players in India, under the cash payout scheme, Money Transfer Service Scheme (MTSS).

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