34. PI — Net Banking

How do I start about this Payment Instrument… Sometimes wonder what is unique about net-banking (apart from fact that bank account holds my beloved salary)…

So here you go… net-banking is very unique to India’s payment ecosystem… Due to low penetration of cards, net-banking was quite popular few years back but now there is consistent drop in its usage and may be few year down the line, net-banking will cease to exist…. that’s it… now that I have concluded the chapter, feel free to read more about net-banking or move to next chapter

Net-banking is Payment facility where customer can transact using bank account that is enabled for online payments.

Few points of net-banking:

• User’s spending is limited to balance in the account (unlike wallet, the balance in this account earns interest)
• During transaction, user is redirected to bank’s website to complete the validation (customer id, password/IPIN)
• As step up validation, some banks may ask for additional authentication steps such as OTP, security question or grid challenge

Note: Have you noticed that regular banking URL and net-banking URL are different?

ICICI — regular bank URL: https://infinity.icicibank.com

ICICI — during eCommerce purchase: https://shopping.icicibank.com

Types of accounts:

There are two types of accounts viz. retail and corporate. Retail accounts belong to individual users and Corporate accounts are issued to companies. Main difference between these accounts is the corporate account transaction goes through maker-checker process where maker initiates the transaction and checker confirms the transaction but retail banking goes through standard validation process (Customer Id — IPIN — optional Step-up authentication).

Integration:

Net-banking is one of the biggest value that a payment aggregator brings to the table. There are 50+ banks so it is not practical for merchant to do 50+ separate integrations and moreover many of these banks do not even have capability, bandwidth or interest to do direct integration with merchants.

So payment aggregator bundles all these banks together and offers to merchant. Some payment aggregators will have direct integration with few banks and for other banks they use another payment aggregator’s platform (Didn’t I tell you…. Payment ecosystem is like Russian Nesting Dolls.. one player inside another… so on)

Road ahead

Net-banking ‘was’ important payment method because of (a) lower credit card penetration (b) fear of using cards online

But net-banking has lower success rates and varies from bank to bank… This is mainly because legacy banking systems, multiple hops to complete the transaction and most importantly, remembering password to complete the transaction.

Over the period, net-banking users started moving to debit cards (every account has debit card) but rise of UPI has drastically affected volumes of net-banking transactions. Decline of net-banking can be attributed to both merchants and customers alike.

• Customer: Multiple hops, remembering password (not a user friendly flow) and UPI gave better alternative
• Merchant: Success rate is inconsistent and rates are higher

Few years back, net-banking options were prominently displayed on merchant’s checkout page. But nowadays net-banking options are at the bottom or hidden.

Net-banking is still a dominant payment method in few sectors (Mutual Funds, NBFC, education) and among few types of users. For few sectors, net-banking rates are flat fee (Rs.x per transaction). So merchants (if charges to be absorbed by merchant) as well as customers (if charges are passed on to customer) continue to prefer net-banking.

I think in few years, UPI will take over these sectors and user bases as well.

Few side notes:

a. You might have noticed Citi bank in net-banking list. But Citi Bank’s net-banking flow is nothing but debit card flow. Citi bank rates are always be in percentage (irrespective of sector and moreover, typically net-banking charges are higher than debit card rates so doesn’t make sense to put Citi bank under net-banking list.

b. Can’t bank come up with innovative solutions for improving net-banking success rate or user experience (say… app-to-app switching). Yes they can but is that effort worth it? In my view, No.

c. Important chain of events that is worthy of mention here… Government is merging PSU banks to make them lean, clean and large… After State Bank group now few more banks are getting merged. Once the consolidation process is complete then we will have 12 PSU banks instead of original 27. So number of total number of banks also will reduce.

Summary:

Net-banking traffic is reducing day by day and number of banks are also decreasing year by year… As mentioned earlier, net-banking is one of the important value that a payment aggregator brings to the table. With these trends, will payment aggregator’s value proposition also will reduce? (think about it)

I wish net-banking options shouldn’t die down… we in payments enjoy using the line “payments are dynamic and COMPLEX”… if net-banking dies then… then we will still continue to say “Payments are dynamic and complex” … (but without caps)