-Jithesh PV, Head Digital Banking, Federal Bank & Ashutosh Dubey, Lead Business Analytics, NPCI
India is one of the largest pools of Human Resources and this is evident from the fact that almost in every nook and corner of the world there are Indians occupying various positions in the payrolls of almost every company. Also, millions of students from India pursue their higher studies in acclaimed universities in US, UK and many European countries. This explains need for a cost effective and robust cross border remittance system in our country and India continues to be the top recipient of remittances with around USD 80 billion remittances while around USD 19 billion is remitted by Indians to rest of the world.
For many businesses, individuals and government agencies, making or receiving payments that cross borders is a necessary activity. Many businesses serve customers abroad and rely on buying goods from suppliers abroad but, in order to do so, they need to be able to receive payments from those customers and make them to those suppliers. Similarly, many people depend on the ability to readily send or receive cross-border payments, such as workers who send money to families in their home countries or individuals who make online purchases from foreign retailers. To facilitate this, Banks play a major role. The cross-border retail payments and remittance market is complex, involving many different parties, use cases and underlying arrangements. The payer and the payee in a cross-border retail payment are typically located in different jurisdictions and require intermediaries operating in multiple jurisdictions. In addition to these multiple actors, many different elements, arrangements and processes need to be in place to enable cross border retail transfers to be made and received. Following are the different types of Banking models to facilitate the cross border payments and remittances:
In this article, we present the case study of Federal Bank, a leading Cross border remittance processing bank in the country.
Since the Oil boom in 1970’s, a lot of Indians have undertaken jobs in Middle East countries, and it has served as a valuable source of income for the Indian economy and backbone of economies like high migration states like Kerala. Those times, it used to be Non-Resident Indians walking into any Exchange House and taking a demand draft drawn on Federal Bank and sending it to their families via courier for encashment to their account.
With the advent of technology, the Federal Bank established online remittance facilities where a DD could be instantly issued by Federal Bank in India on receipt of remittance advice by the overseas Exchange House, favoring an NR account there by avoiding the cost of sending the drafts by courier and minimizing the time taken. By mid-2000’s with the launch of NEFT, the Bank facilitated remittances directly into any account in the country both offline and real time method using secure API connection established with the exchange houses. Probably this could be one of the first use cases of API Banking in the country. This has reduced the time for ultimate credit to the account by half an hour to a maximum of 24 hours.
However, with the introduction of IMPS by NPCI, at present, a beneficiary can get credit into his account in less than 3 minutes. As remittance business is a very sensitive area with each remitter wanting to see his money credited to his desired account seamlessly, the Bank has been constantly innovating in this area. A dedicated team of technology specialists are working on enhancing its remittance platform- FedFast - that caters to millions of transactions every day.
With the intention of bringing value addition to the platform, the Bank launched a blockchain based cross border remittance platform in 2019, which brings more visibility and transparency of transactions for partner banks on the platform and eliminates the need for additional reconciliation mechanism. As we all know, UPI revolutionized payments in India, and it is a key differentiator between India and some of the major economies. While UPI was available only for residents during the launch, in 2019, NPCI made it available to non-residents as well and opened it up for inward remittances. Federal Bank was an early adopter of UPI for Foreign Inward Remittance and has already integrated the UPI FIR services to our remittance platform. FIR is one feature that will make the remittance business much more innovative and competitive among other value-added services, that the Bank offers to overseas Money Transfer Companies now.
Federal Bank is today handling 17% of India’s inward remittances because of the early investment in infrastructure for remittances to the country. If we take Middle East alone, the Bank has rupee drawing arrangements with around 90 Banks and Exchange Houses for remittances to India. Apart from Middle East, the Bank has direct arrangement with remittance companies in USA, Canada, UK, Australia, New Zealand, Hong Kong, Singapore, Japan and Malaysia
All these while we have been talking about inward remittances. There is a significant demand for outward remittances as well especially for education and travel and so the Bank has launched an online platform where money can be remitted abroad from India using an online remittance platform - Fed-e-Remit. The Bank is providing attractive exchange rates for online remitters and seeing increased traction in this space as well.
