The key focus area; as also highlighted in the Strategy Roadmap,

should be the Payments innovation and comprehensive M-banking

solution.
Motivation:
One of the key problems in everyday sundry cash transactions for
consumers is the lack of availability of currency, or the right
denomination of currency. While most of the customers have the
money in their bank account, the ATM charges and the non-availability
of smaller currency notes at ATMs leads to an undesirable situation,
especially in the Tier-1 and Tier-2 cities.
Consider a regular day of a working Mumbai woman. She leaves her
house in the morning to find an Auto-rickshaw that can drop her to the
train station. After being able to find one Auto, the first question that
she is asked is Chhuta hai na?.
After being able to convince the autowallah she travels through the
traffic to the train station, where upon arrival she realizes she doesnt
have the exact change. So, she either ends up overpaying or frantically
goes around asking small shop-owners for cash. She then stands in
queue to buy the train ticket where exact cash again poses a problem
for her. This story continues throughout the day, and a normal urban
working person faces cash transactions around 8 times; on an average,
everyday.
This problem is not only from the side of the consumers, but from the
side of merchants as well. The small shop owners or autowallahs cant
afford to install card POS terminals due to the fixed and transactional
costs involved. Further, in some areas availability of cards or even
mobile Internet connectivity is an issue.

Figure 1 Mckinsey Report - Strategic choices for banks in the digital age i

Proposal:
Future of Mobile Banking:
Phones are the bank branches of future. Within next 7 years, the
market will have at least 3 digital banks. These banks would be able to
provide all their services from loans to deposits to payments to
transfers and remittances - over the Internet.
For loans, the mobile app would substitute the physical collection of
documents and signatures of final agreement, with uploads of certified
digital copies of documents and certified e-contracts and digital
signatures
with
biometric
verification
on
smartphones.
A
comprehensive note in this regard can be found here. The deposits
would be made at ATMs, cash drop boxes, and with home collection
agents.
However, there is a wide gap that is being created as the banking
sector innovates. It is the clear demarcation between the type of
products and services offered to the urban and rural customers. This is

where the need for a Universal and comprehensive payment solution is

needed. Facilitating monetary transactions is the heart of modern day
banking and is its most tangible function.
Pay Yes
The proposed solution entails a mobile application Pay Yes (PY) that can function both online and offline. PY would be a substitute to
the physical POS terminal infrastructure that is currently in place. PBoI;
being a new bank, has been overwhelmed by the legacy presence of
established banks. An effective way to counter this would be to change
the rules of the game (instead of playing it on the rivals turf).
The app would require an online registration and a special savings
account called Digital Savings Account (DSA). This feature would also
be offered as an add-on to the existing savings bank accountholders.
The marketing campaign would be Is your bank account Digital?
DSA; in addition to bank account number, would feature a fixed 10
digit alpha-numeric unique username that the accountholder would
create at the time of opening the account and which would be used to
map the accountholders account information.
Similarly, for small mom-and-pop shops and merchants like
autowallahs there would be a special Digital Current Account (DCA)
hence, making CASA accounts truly digital. DCA would also have a
username associated with it.
How it works?
The DSA accountholders (the spenders) and the DCA accountholders
(the merchants) would use PY platform to settle payments using
Internet and mobile banking options.
For each payment, a pay-offer would be generated by the spender.
Each transaction would be verified by the unique usernames of both
the parties. If the customer has an Internet connection, then theyll
simply search enter the username of the merchant and initiate
payment after verifying the merchants name and details.
If the customer does not have an Internet connection, then the app
will send an encrypted, encoded SMS to PBoI that will contain:
Payee Username
Merchant Username
Amount

Transaction Password

In both the cases, first a transaction validity check would be performed

and it shall be ensured that the customer has sufficient balance in the
account. An OTP would be generated for both merchant and customer
and sent via SMS immediately. The said OTP would act as the 2 nd Factor
Authenticator (and verify double handshake protocol like in Bluetooth
pairing of 2 devices).
Post the OTP confirmation; a payment using the existing NEFT/IMPS
infrastructure would be initiated. Since, the processing of payment
would take time, a payment initiation confirmation would be sent to
the merchant to affirm that the payment has been made and that the
requisite amount has been deducted from the customers account. This
would indicate to the merchant that the payment has been made, and
is only pending clearing/transfer.
All these steps would be automated and run their course in under 30
seconds.

t = 0 seconds

t < 22 seconds

t < 30 seconds

The benefits of PY are palpable. For spenders, it takes away the hassle
of tendering exact cash and saves them from ATM withdrawal charges.
For merchants, it offers a more affordable way to accept online/digital
payments without even the need of a physical POS infrastructure (and
the accompanying costs).
The biggest benefit of PY is that it can be easily expanded to semiurban or rural areas, as it does not require Internet connectivity.

Initiation
The
payee
initiates
the
payment/transfer
from the app.
Keys
in
the
merchant's unique
username,
amount, and the
transaction
password
manually, or scans
it using QR code
or NFC
Information is sent
using the Internet
or Phone Network
by an encryted
message

Double
Authenticatio
n

After balance
availability
check, an OTP
is
generated
and sent to
both merchant
and customer
Both
the
parties feed the
OTP in the app,
and confirm the
transaction

Payment
Money transfer
is intiated using
existing
NEFT/IMPS
networks
A confirmation
message
is
sent to the
merchant
to
indicate
that
the transaction
has
been
initiated,
and
the
monies
have
been
deducted from
payee's
account

Business size
Were afraid we took up most of the word-limit explaining the solution.
The business opportunity of PY; like any other disruptive solution, is offthe charts. In our view, the PY and the supporting infrastructure DSA,
DCA, Usernames encapsulate so many ideas in themselves that they
can revolutionize banking and put PBoI (please let us call it Yes Bank
now) in the forefront.

ihttp://www.mckinsey.com/insights/financial_services/strategic_choices_for_banks_
in_the_digital_age