ATM Service:

Overview of Switch Process

Why Connect to NFS ."Banks on CBS issue proprietary ATM cards"

Due to limited resources and know-how, the Co-op. Banks have tie-ups with various technology providers who automate their branches, setup inter-branch network, establish ATMs and issue proprietary ATM cards, which only work on the Co-op. Bank’s ATMs.

• As a result, there are fewer transactions, which raises the cost per transaction.
• As proprietary ATM cards work on only the Co-op. Bank’s own ATMs, usage is low and so is the ROI.

Need of providing the bank customers access to a larger ATM network

• This is required so that the Co-op. Bank can be at par with the larger commercial banks in public and private sectors.
• This is possible only if Co-op. Banks connect with the country-wide ATM network of all NFS Member Banks.
• Once the Co-op Bank’s ATMs are driven by our switch, they can acquire transactions from NFS member cardholders and earn revenue from it. A simple ATM controller cannot qualify for that.
• This will increase the transaction volume on the ATMs and thereby reduce the cost per transaction and increase ROI.

Problems in Connecting Co-op. Banks with NFS

Minimum requirements to connect to NFS in the conventional method

• Bank needs to have a stable Core Banking System which is available 24x7 to process ATM transactions
• Bank should have proper EFT Switch Infrastructure with HSMs of required standard for

Cryptographic operations like PIN verification

• Bank should have direct RTGS Membership and current account with RBI for settlement
• Trained manpower to manage and maintain the infrastructure and its operation
• Huge capital and recurring expenditure for low card volume
• All the above require huge capital and recurring expenditure which is not justified for the low volume of cards a typical small Co-op. Bank will issue.

Problem for NPCI to connect so many smaller Co-op. Banks

• Low volume of cards and transactions does not justify dedicated connection
• Non availability of EFT expertise on UCB side is a hindrance in setup, testing and day-to-day operations and trouble shooting
• From NPCI’s point of view, it is tedious to certify and deal with each Co-op. Bank that wants to connect to the NFS, considering the large number of such banks.

Solution: NFS sub-membership under sponsor bank / ASP model

• Co-operative bank joins NFS as sub-member. All it requires to have 24x7 available CBS and connectivity to a shared EFT switch provided by ASP.
• EFT Switch infrastructure will be provided by an ASP certified by NPCI.
• This EFT switch will drive the ATMs / POS terminals of the co-operative banks, which will enable the bank to act as acquirer of transactions for other NFS members’ cards. In addition it will provide top-class ATM/POS driving and monitoring on a high-available, secure and reliable infrastructure setup.
• ASP’s EFT switch will also host the card database for the co-operative bank, thereby enabling the co-operative bank to participate in the NFS network as issuer.
• An approved sponsor bank who is already a NFS member will take care of the settlement of transactions done for the sub-member bank.
• Dispute Management is also front-ended by sponsor bank
• Sponsor bank will assign a gross limit for each of its sub-members on NFS for authorizing sub-member’s issuer transactions.

Why Sponsor Bank/ASP Model is Ideal

• Larger Co-op. Banks have seen the benefits of such NFS connectivity but they have had to invest heavily in the infrastructure needed for it not just one time, but also the recurring expenses to maintain such a system are heavy.
• ASP has already made the investment into EFT Infrastructure and is certified by NPCI to provide Switch-to-Switch connectivity between the ASP’s EFT Switch and NFS.
• ASP offers EFT Switching Services to Co-op. Bank’s on a shared ASP model, thereby saving the Co-op. from a huge capital expenditure, while increasing its revenue and customer satisfaction.
• Co-operative bank need not have direct RTGS membership or current account with RBI. This also saves them from significant investment for it.

1. Settlement Process

Co-op. Bank becomes sub-member of an existing NFS member bank (termed as “Sponsor Bank”) that acts as the Settlement Banker.

Sponsor Bank performs the following functions:

• Settlement responsibility: Settlement of all transactions will be done by the Sponsor Bank on behalf of its sub-member banks – an arrangement similar to clearing sub-membership
• Sets limit for sub-member Co-op. Bank on NFS: For off-us transactions by customers of a sub-member bank, NFS will carry out Liquidity Check against a Limit set by Sponsor Bank on the sub-member bank
• Responsible for disputes management: Sponsor bank is also responsible for disputes management.
• Assists sub-member in Recon and DMS: Sponsor Bank and ASP will assist the Co-op. Bank for this purpose and provide the required software components and interfaces

Transaction Flow Diagram

• Co-op. Bank issues “RuPay” cards to its customers, which will carry the bank’s Unique BIN.
• Co-op. Bank Customer having “RuPay” card is able to transact at NFS Member Bank ATM for a Withdrawal or Balance Inquiry.
• The transactions done by Co-op. Bank Customers on NFS Member Bank ATM are routed to ASP switch under which the Co-op. Bank BIN is configured on NFS.
• NFS Switch runs a Liquidity Manager wherein NPCI input & control the Bank level limits based on request from the Sponsor Bank.
• The transactions at NFS Member Bank ATMs are first checked against availability of the Co-op. Bank level limit on NFS.
• Transactions are declined by NFS Switch if amount exceeds Co-op. Bank’s available limit in Liquidity Manager.
• If there is sufficient “Bank Limit” available, the transaction is routed to the ASP switch for the Co-op. Bank, which is further routed to Co-op. Bank’s CBS host for authorization.
• If there is sufficient “Customer Balance” then the transaction is approved and sent back to NFS Member Bank Switch for payment.
•  NFS sends settlement report to the Sponsor Bank for settlement and ASP report to the ASP for reconciliation.