The digital payment market is growing rapidly across the world and playing an important role in digital transformation. There are a lot of factors that are helping this market to grow. Apart from this, the government is also focusing on eliminating the conventional way of payments and promoting digital payment culture across the nation. Rajeev Ranjan, Editor, Digital Terminal interacted with Mr. Sathish N, Deputy. Chief Product Officer, FSS to know more about the digital payment ecosystem and how are they working to help the financial institutions in embracing digital transformation. Read below the excerpts:
Rajeev: How do you see the growth of digital payment ecosystem in India? What are the fueling factors for this market to grow?
Sathish N: India is among the fastest-growing digital payments market globally. Over the last decade a combination of forces – favorable regulatory environment, the government push for digitalization and atmanirnhar India, universal availability of ICT, the development of critical payments infrastructure (UIDAI, India Stack, UPI, Bharat QR) and rapid innovation in the Fintech space – have propelled India to become one of the fastest-growing nations when it comes to digital payments.
The NIti Ayog and the government of India have set an ambitious target for one billion digital transactions a day from the current run rate of three billion a month. This would accelerate digital transformation programs as banks try to grow their businesses, respond to customer demands, and compete with other providers.
Rajeev: Can you explain how the automating reconciliation system helps in improving the efficiency of processing transactions?
Sathish N: With digital payments growing exponentially, millions of transactions are exchanged daily between multiple payment ecosystem constituents. The payment or transaction settlement cycles varies basis the combination of stakeholder and different applications that are used and accounting records maintained by these multiple processing systems need to be in sync at different stages of the transaction. The accuracy of the financial close process is crucial to maintaining the financial integrity of the ecosystem, mitigating risk, and fostering trust amongst customers.
Further with open banking and instant payments increasingly becoming mainstream, back-office enterprise reconciliation systems need to keep pace. Conventionally, transactions typically were processed in a batch mode and payments took hours, if not days, to process, clear and settle. Now, reconciliation and settlement cycles have been compressed. This puts tremendous pressure on any institution's back office to support multiple intraday settlement cycles and reconcile data in near real-time. Current manual or semi-automated processes simply cannot scale to accommodate new business needs.
End-to-end enterprise-level automated reconciliation processes can help financial institutions and corporates scale to handle large influx of transaction data, improve speed, manage operational risk, and address compliance needs.
Rajeev: What kind of challenges are technologies such as AI and ML helping banks overcome in reconciliation?
Sathish N: A growing number of channels, instrument complexity, activity spread across multiple service providers and increased transaction frequency by consumers adds to the complexity of the reconciliation process. AI and Machine Learning will have a significant upside on the efficiency of the reconciliation process. By employing machine learning at key data reconciliation points, reconcilers can unlock multiples of value in terms of time, operating cost and avoiding regulatory penalties,
Advanced ML algorithms can improve process efficiency across multiple reconciliation points. The reconciliation process typically entails tasks such as onboarding payment classes, extracting, and normalizing data from non-standardized file formats, defining matching rules and posting entries for settling accounts.
Conventional systems rely on a static pre-configured “rule-based framework” for payments reconciliation. However, these tools can become inefficient while adding new data sources or if new entries are introduced in a particular reconciliation file, these need to be identified manually. Further reconciliation teams need to create, test, and implement new rules whilst balancing the impact on existing rules which prolongs the reconciliation cycle time. With ML-enabled processes, the system automatically “learns” the data sources and patterns, analyzes it for likely matches across multiple data sets, highlights reconciliation exceptions/mismatches, and presents actionable “to do” lists to resolve data issues.
The use of Robotic Process Automation can automate routine, manually intensive tasks. Let me give you an example. Even today banks with automated reconciliation processes deploy dedicated personnel to fetch files from an interchange portal or a dispute management system, download the files and place them in the right location for the reconciliation system to act on the data. Such tasks can be automated by use of bots, maximizing value of employee time.
Payment reconciliations have become exceedingly complex, with multiple payment options, channels, combination of product processors for different payment method across line of business and the need for speed and accuracy of reconciliation is crucial for businesses. FSS Smart Recon offers an AI-based solution for reconciliation management across payment workflows, with built-in support for, multi-source, multi-file many-to-many reconciliation scenarios. With FSS Smart Recon customers can achieve a 40% improvement in time to market for greenfield implementations, a sizable 30% betterment in reconciliation time cycles, and an overall 25% lessening in direct costs as compared to partially automated processes FSS Smart Recon adds value in many ways.
Rajeev: What are some of the other technology trends you predict to take place in reconciliation?
Sathish N: Rapid payments evolution, market competition, and advancements in technology continue drive evolution and modernization of reconciliation processes. Technology trends that are gaining momentum include
Rajeev: Name some of the successful projects/clients.
Sathish N: FSS is a trusted partner by leading banks, neo-banks, and payment processors globally to automate reconciliation and streamline back-office operations. FSS is ahead of the market when it comes to reducing time, cost, and hassles of reconciling payments. For instance, India’s largest public sector bank required a scalable in-premise solution to reconcile payment transactions. A critical criterion for winning the contract was our ability to perform reconciliation for around 600 million electronic transactions in four hours. FSS was the only vendor, among the five that successfully reconciled 600 million transitions in just three hours and 56 minutes and was thereby awarded the contract. Currently, we reconcile an approximate 1B transaction a month for the bank.
To cite another example, post-amalgamation of three public sector banks in India, the anchor bank preferred to retain FSS Smart Recon as its vendor due automated workflows superior performance and scalability of the solution as well as assured quality of service provided by the FSS Managed Services teams.
We are working with neo banks including India Post Payments Bank, Airtel Payments Bank and a wallet service operated by India’s leading conglomerate to improve efficiency of back-office operations. Some of the new channels such as mWallets, IMPS and UPI are high-volume systems and have multiple settlement cycles in a single day. We have been successfully able to scale and process growing transaction volumes and at some of these locations we have gone live in 12 weeks.
