Instant money at negligible cost

Banks have launched services that will allow account holders to transfer Rs 50,000 a day

You can use your mobile to transfer money from your bank account to another. Last week, several large banks have started offering this service with the help of a government body, National Payments Corporation of India (NPCI).

Called as Instant Mobile Payment System (IMPS), the technology does not require phones to be internet-enabled. The transfers are done by using short message service (SMS).

Until now, the transfer of money through mobile phones was possible only if both the sender and the receiver held accounts with the same bank.

NCPI’s platform, for the first time, enables users to transfer money between accounts of different banks.

As of now, seven banks, including HDFC Bank, ICICI Bank, Axis Bank and State Bank of India, have gone live with the system. Seven more banks are in the process of activating the service and 22 others are expected to join the network soon.

To start transferring money from your account, you will first need to register with your bank. The bank will provide you a Mobile Money Identifier (MMID) and a Mobile PIN (MPIN).

The part that requires getting used to is formatting of text message. There are pre-defined text message formats that you need to type while transferring money.

IMPS is a step further to the existing methods of remitting cash, which include wire transfers, Real Time Gross Settlement (RTGS. This is also the fastest mode of transferring money at present. NPCI claims the transaction would be done in 15-20 seconds.The service eliminates a person directly handling cash while saving on transaction costs and time.
 

ADVANTAGES:

• Easy to use, Requires no special handset
  
• Remittance on real-time basis making it the fastest system to send and receive money
  
• No physical cash handling. Saves on time required to visit bank
  
• Safe and more credible, as managed by a government body

DISADVANTAGES:

• Sender and receiver both need a bank account, unlike money transfer through post offices
  
• Both sender and receiver's bank should be a part of the system
  
• Requires documentation to start the service that may discourage unorganised sector
  
• Large transfers not possible as now. It has a cap of Rs 50,000

Charges
At present, banks are offering this service for free. However, most of them have said that they would apply a small fixed charge in future, like in case of internet/online banking.

For internet-based fund tranfers, most of the bank levy around Rs 5 each transaction for amount up to Rs 1 lakh.

Even at this rate, the transactions would be cost effective. The total cost of completing the transaction depends on charges for sending the text message and the fee bank will apply for each transaction. Your bank may also charge you fee, either one-time or annually to avail this service.

For transferring Rs 1,000, a person, the cost could be 0.7 - 1 per cent of the amount. However, these are fixed costs and would turn lower if the amount is high.

Using this service, you can transfer up to Rs 50,000 each day, according to the Reserve Bank of India’s guidelines. The norms also state that transactions up to Rs 1,000 does not require encryption.

Security
NPCI’s platform act as intermediary between sender’s and receiver’s bank. Bankers claim that this system is foolproof and secure because all it involves from the sender’s end is a text message in defined format.

Future
At the moment, few banks are ready to roll out the services to their customers. As more banks offer this service, a person can use this system for smaller-ticket size transactions like monthly payments to maids and drivers. It would also save on frequent trips to the bank for deposit and withdrawal.

However, the system’s success would depend on its eventual ease of transaction capability, its promise of a transaction in real time.

The writer is portfolio manager, Right Horizons