The National Automated Clearing House (NACH) mandate released by the National Payments Corporation of India (NPCI) is making giant strides in the Indian payment industry. According to NPCI reports, yearly volume of NACH has already reached about 95 million transactions by May 2015 amounting to about Rs. 250 billion in actual credit value.
In early 2013, NPCI implemented a web based solution to facilitate direct debit and direct credit transactions across businesses and consumers while avoiding the high cost credit card payment networks and processing charges of paper based checks. This solution, called National Automated Clearing House (NACH), helps in direct saving of interchange fees resulting in profits for the stakeholders involved. NACH is majorly used for making high volume, low value debit/credit transactions that are recurring in nature. NACH supports two types of transactions.
- Direct Credit, which involves distribution of salary, pensions, dividends, interest, etc to the relevant stakeholders at set frequency and periods and
- Direct Debit, which making regular fixed payments towards insurance premiums, loan repayments, recurring deposits, etc.
Benefits of using NACH:
One of the major benefits of using NACH is to avoid the high interchange fees of the credit card companies. NACH charges a nominal fee at a fraction of the interchange fees. NACH helps avoid processing charges of paper based check transactions which can provide significant cost savings to Banks and Financial Institutions due to economies of scale. In addition, NACH aids financial inclusion through its Aadhar Payment Bridge (APB) system by enabling Government Agencies to transfer subsidies and other benefits directly to the beneficiary using an Aadhar linked account, thus avoiding middle men and reducing corruption. NACH is ISO20022 compliant and follows best practice security standards for quick and reliable transactions and same day payment processing is made possible through NACH. Member banks can create their own solutions to address specific corporate and user needs for mandate management, thus ensuring greater efficiency in customer service through a superior mandate management system.
Mandate Management System:
A Mandate Management System (MMS) is a solution which helps in creation, amendment and cancellation of mandates used for NACH debit transactions. The MMS should handle mandate processing and validation and forward the data to relevant destination via NPCI. The system should also handle incoming data from destination via NPCI and update the records and stakeholders accordingly. The system must be designed according to NPCI guidelines, practices and standards. Security, messages and other standards need to be maintained as required by NPCI.
FSS provides highly customizable end-to-end wholesale payment solutions to help banks implement mandate management under the NACH guidelines and the payment solution handles both direct credits and direct debits from the relevant accounts. FSS has implemented and operationalized RTGS module of the payment hub solution for a leading public sector bank in record time of 3 months since receiving the PO.
The NACH module is expected to be operationalized very soon and FSS’ expertise in integrated solutions for RTGS, NEFT, NACH, SWIFT, Government payments, Remittances, etc. will aid in improved business effectiveness for the banks. Banks and financial institutions can minimise the risks and reduce total cost of ownership by utilising FSS solutions either as a licensed deployments or as a hosted solution with pre-established integration capabilities.
With FSS Mandate Management System banks can now streamline payments processing and improve operational efficiency.