PAYMENT AND SETTLEMENT SYSTEMS

Payment and settlement systems play an important role in improving overall economic efficiency. They consist of all the diverse arrangements that we use to systematically transfer money-currency, paper instruments such as cheques, and various electronic channels.

Glossary

Glossary of Common Terms related to Payment Systems


Aadhaar Enabled Payment System (AePS) AePS is a bank led model which allows online interoperable financial inclusion transaction at PoS (MicroATM) through the Business correspondent of any bank using the Aadhaar authentication. AePS allows you to do six types of transactions.

The only inputs required for a customer to do a transaction under this scenario are:-

i. IIN (Identifying the Bank to which the customer is associated)

ii. Aadhaar Number

iii. Biometric captured during their enrolment
Additional Factor of Authentication (AFA) Additional authentication / validation done for card not present transactions based on information not visible on the cards, usually through a One Time Password (OTP) sent by issuer on e-mail / mobile to allow customer to authorise the transaction.
Bharat Bill Payment System (BBPS) A one-stop payment platform for bills of utility agencies providing an interoperable and accessible bill payment service to all customers across India. The system provides customers with the option to pay any bill anytime and from anywhere.
Bharat QR A common interoperable QR (Quick Response) based payment solution which represents a channel of initiating and accepting payments between buyers and sellers (or consumers and merchants).
Bilateral-net settlement system A settlement system in which participants’ bilateral net settlement positions are settled between every bilateral combination of participants. See also net credit (or debit) position.
Biometric Refers to a method of identifying the holder of a device by measuring a unique physical characteristic of the holder, e.g., by fingerprint matching, voice recognition or retinal scan.
Board for (Regulation and Supervision of) Payment and Settlement Systems (BPSS) The sub-committee of the Central Board of the Reserve Bank of India, is an apex policy making body on payment systems in the country. The BPSS is empowered to authorise, prescribe policies and set standards for regulating and supervising the payment and settlement systems in the country.
Central Counterparty (CCP) An entity that interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the performance of open contracts.
Clearing The process of transmitting, reconciling and, in some cases, confirming transactions prior to settlement, potentially including the netting of transactions and the establishment of final positions for settlement. Sometimes this term is also used (imprecisely) to cover settlement. For the clearing of futures and options, this term also refers to the daily balancing of profits and losses and the daily calculation of collateral requirements.
Clearing House A multilateral system or arrangement that provides its participants with clearing services for payment instructions, securities transactions, derivatives transactions, and in some cases, settlement services.
Card Present (CP) Transaction A CP transaction is a card transaction that is carried out through physical presence of card at the point of transaction. It is also known as face-to-face or a proximity payment transaction. An example is a transaction carried out at an ATM or a PoS terminal.
Card Not Present (CNP) Transaction A CNP transaction does not require the card to be physically presented at the point of transaction. It is also called as a remote transaction. An example is an online transaction or a mobile banking transaction using the card.
Contact cards Cards that require physical contact through an electronic connection surface between the card and the card reader or terminal device.
Contactless cards Cards that do not require physical contact between the card and the card reader or terminal.
Customers (of Electronic Payment Systems) Buyers / Beneficiaries of goods and services from a merchant who have routed their payment for the purchases through an electronic / online payment platform. The customers may / may not be aware of the role, presence or involvement of the online payment service provider.
Deferred Net Settlement (DNS) A net settlement mechanism which settles on a net basis at the end of a predefined settlement cycle.
Delivery versus Payment (DvP) A securities (asset) settlement mechanism that links a securities (asset) transfer and a funds transfer in such a way as to ensure that delivery of asset / security occurs if and only if the corresponding payment occurs.
E-commerce Buying and selling goods and services including digital products over digital and electronic networks, which may have –

- Inventory based model of e-commerce where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.

- Marketplace model of e-commerce which involves providing an IT platform / digital / electronic network to act as a facilitator between the buyer and seller.
Escrow Account Account maintained in a bank in which funds are held for specific credits and debits
Failed Transaction A transaction that does not settle on the contractual settlement date due to financial, operational or legal reasons.
FASTag FASTag is a device that employs Radio Frequency Identification (RFID) technology for making toll payments directly while the vehicle is in motion.
Final Settlement The irrevocable and unconditional transfer of an asset or financial instrument, or the discharge of an obligation by the FMI or its participants in accordance with the terms of the underlying contract.
Financial Market Infrastructures (FMI) Generally refers to systemically important payment systems, Central Securities Depositories (CSDs), Securities Settlement Systems (SSSs), Central Counter Parties (CCPs), and Trade Repositories (TRs) that facilitate the clearing, settlement, and recording of financial transactions. FMI is a multilateral system among participating institutions, including the operator of the system, used for the purposes of clearing, settling, or recording payments, securities, derivatives, or other financial transactions.
Gross Settlement System A transfer system in which the settlement of payments, transfer instructions, or other obligations occurs individually on a transaction-by-transaction basis for full value.
Interoperability The technical or legal compatibility that enables a system or mechanism to be used in conjunction with other systems or mechanisms. Interoperability allows participants in different systems to conduct clear and settle payments or financial transactions across systems without participating in multiple systems.
Large-Value Payment System (LVPS) A funds transfer system that typically handles large-value and high-priority payments. In India, an example of LVPS is the Real Time Gross Settlement System (RTGS).
Merchant Discount Rate (MDR) MDR is the cost / fees paid by a merchant to its acquiring bank for accepting payment from their customers via digital means.
Multilateral Netting The offsetting of obligations between or among multiple participants to result in a single net position per participant.
National Electronic Toll Collection (NETC) National Electronic Toll Collection (NETC) is an interoperable payment system for toll plazas that encompasses a common set of processes, business rules and technical specifications which enable a customer to use their FASTag as payment mode on any of the toll plazas irrespective of who has acquired the toll plaza.
National Payments Corporation of India (NPCI) National Payments Corporation of India (NPCI), is an umbrella organisation for operating retail payments and settlement systems in India, authorised by the Reserve Bank of India (RBI) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment & Settlement Infrastructure in India.
NFC (Near Field Communication) NFC is a short-range high frequency wireless communication technology that enables the exchange of data between devices over a short (about 1-4 cm) distance. It helps in contactless payments.
Net credit (or debit) position A participant's net credit or net debit position in a netting system is the sum of the value of all the transfers it has received up to a particular point in time less the value of all transfers it has sent. If the difference is positive, the participant is in a net credit position; if the difference is negative, the participant is in a net debit position. Depending on the circumstance, these net positions may be calculated on a bilateral or multilateral basis.
Netting The offsetting of obligations between or among participants in the netting arrangement, thereby reducing the number and value of payments or deliveries needed to settle a set of transactions.
Nodal Account It is an internal account of the bank, opened for facilitating collection of payments by intermediaries from customers of merchants.
Novation A process through which the original obligation between a buyer and a seller is discharged through the substitution of the counterparty as seller to the buyer and buyer to the seller, creating two new contracts.
Payment Aggregator (PA) An intermediary in an online payment transaction accepting payments on behalf of the merchant from the customers and then transferring the money to the merchant’s account.
Payment Gateway (PG) A technology infrastructure provider to route and facilitate processing of an online payment transaction, without any involvement in the actual handling of funds.
Payment Card Industry - Data Security Standard (PCI-DSS) A set of security standards designed to ensure that all companies that accept, process, store or transmit card information maintain a secure environment.
Payment Application - Data Security Standard (PA-DSS) A security standard for software vendors that develop payment applications. The standard aims to prevent storage of prohibited secure data (CVV2, PIN magnetic stripe).
Personal Identification Number (PIN) A numerical code ranging from 3 to 8 digits to be used by a card holder in online electronic financial transactions and generally in conjunction with user-name and / or other passwords. The PIN can be static (same for every transaction) or dynamic (different for every transaction).
Payment and Settlement Systems Act, 2007 (PSSA) A legislation that provides for regulation and supervision of payment systems in India and designates the Reserve Bank of India as the authority for the purpose.
Real-Time Gross Settlement (RTGS) The real-time settlement of payments, transfer instructions or other obligations individually on a transaction-by-transaction basis.
Settlement The discharge of an obligation in accordance with the terms of the underlying contract.
Straight Through Processing (STP) The automated end-to-end processing of trades and/or payment transfers, including the automated completion of confirmation, matching, generation, clearing and settlement of instructions, without the need for re-keying or reformatting data.
Technology Service Providers (TSPs) TSPs include entities providing only technology platform or support (software, hardware or a technical service) to bank payment gateways, non-bank payment aggregators, e-commerce platforms, etc. Being pure technology service providers, they do not at any point hold the monies transacted between the customer and merchant.
Tokenisation Tokenisation refers to replacement of actual card details with an alternate code called the “token”, which shall be unique for a combination of card, token requestor (i.e. the entity which accepts request from the customer for tokenisation of a card and passes it on to the card network to issue a corresponding token) and device (referred hereafter as “identified device”).
Unified Payments Interface (UPI) Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood. It enables both 'Push' (send) and 'Pull' (request) payments thus finding utility in P2M (Peer / Person to Merchant) payments at shops / e-commerce and P2P (Peer to Peer / Person to Person) payments.
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