Milind G
Types of Payment Systems
1. A payment system settles financial transactions between payers and beneficiaries. Flow of funds in a payment system in general involves either movement of funds from one account3 to another or loading of cash to an account or withdrawal of cash from an account. For this discussion paper, payment systems in India are categorised into two types –
i. Funds Transfer Payment Systems – System facilitating transfer from one account to another account identified by originator customer [what we call as Person-to-Person (P2P) transaction]; and
ii. Merchant Payment Systems4 – System facilitating payments for availing goods or services5 [what is known as Person-to-Merchant (P2M) transaction].
2. Funds Transfer Payment Systems: Real Time Gross Settlement (RTGS), National Electronic Funds Transfer (NEFT) and Immediate Payment Service (IMPS) are the main exclusive funds transfer payment systems in the country.
3. Merchant Payment Systems: Card networks and PPI issuers provide important merchant payment systems in the country. Their features include:
i. Card networks: They facilitate the issuance of card-based products like credit cards, debit cards and prepaid cards. Card network payment system can be a three-party or a four-party settlement system. Card payment system can also facilitate funds transfer from one card to another; however, they primarily function as a merchant payment system.
ii. PPIs: These are issued both by banks and non-banks. Banks issue them as one of the business segments in their bouquet of products. Non-bank PPI issuers are standalone operators of this product. After the permission granted to non-banks to issue cards in affiliation with card networks, most of the card issuing non-bank PPI issuers are issuing cards in association with authorised card networks.
4. Unified Payments Interface (UPI) is a very popular funds transfer system, which is quite convenient and fast. RTGS and NEFT also facilitate merchant payments; but these are not popular channels for daily purchase of goods and services as – (a) RTGS is a large value payments system and is mainly used for business-to-business payments; and (b) NEFT is not an immediate payment system and confirmation of receipt of funds in the merchant’s account takes time. UPI, unlike these, facilitates immediate credit with real-time confirmation.
Extract from: https://rbi.org.in/scripts/PublicationsView.aspx?Id=21082
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