Academic Paper, 2017
68 Pages, Grade: 3.67
CHAPTER 1 - INTRODUCTION
1.1 Background to the study
1.2 Problem Statement
1.3 Objectives of the study
1.4 Significances of the study
1.5 Scope of the study
CHAPTER 2 - REVIEW OF LITERATURE
2.2 Previous Studies or Related Solutions
2.2.1 Overview of BLIK
2.2.2 Overview of Swish
2.2.3 Overview of China UnionPay (CUP)
2.2.4 Overview of Rupay
2.3 Conceptual Framework
CHAPTER 3 - RESEARCH METHODOLOGY
3.1 Research Design
3.2 Framework for Data Analysis
3.3 Data Analysis and Results
CHAPTER 4 - PROPOSED FRAMEWORK
4.1 Physical Card solution
4.2 Card solution for ecommerce environment
4.3 Mobile payment solution
4.3.1 Mobile payment solution for ecommerce, retail and ATM
4.3.2 Mobile P2P transfers
CHAPTER 5 - SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary of the research
5.3 Limitations of Study
5.5 Further Research Suggestions
ABBREVIATIONS AND ACRONYMS
In spite of the fact that Maldives Monetary Authority issued license to eight banks to operate in Maldives and two mobile operators for providing mobile payment service in Maldives, digital payment industry in Maldives continue with challenges due to banks and service providers operate in an independent environment. This research is a study on implementing a domestic payment scheme in Maldives which will act as a national payment network interconnected by banks and all the payment service providers in Maldives. The first phase of the research involves studying and analysing domestic payment solutions implemented and operating on countries from various regions around the globe. Second phase involves understanding the people and their interaction towards different digital payment methods including existing and new trends. Finally proposing an enhanced and tailored framework for Maldives digital payment ecosystem.
Keywords: Digital Payment, Domestic Payment, Mobile Payment, Maldives Monetary Authority (MMA), Digital Payments in Maldives
I would like to express my gratitude to following people for the assistance, support and cooperation they have provided me:
1. Meghna Kaniyath Soman & Srinath Krishnamoorthy, My supervisors, Lecturer, faculty of Information and Communication Technology at Villa College for their guidance, support and inspiration provided me throughout the research period.
2. Ms. Shahla Imad, Research Assistant, Institute for Research and Innovation, Villa College for her continuous guidance, support and follow-ups through the research period.
3. Ms. Aminath Waseela, Research Assistant, Institute for Research and Innovation, Villa College for her support and guidance provided during the research period.
4. Ms. Udhuma Abdul Latheef, IT coordinator, faculty of Information and Communication Technology at Villa College for her support during research work. 5. My Wife Ashi and My Daughter Azka for their patience and support throughout the research period.
6. All the members of family and colleagues who encouraged and gave moral support during the research period.
Figure 2.1: Transaction flow in BLIK
Figure 2.2: BLIK statistics
Figure 2.3: Transaction flow in Swish
Figure 2.4: Swish statistics
Figure 3.1: Age group vs bad experience on using digital payments
Figure 3.2: Digital payments enhance shopping experience
Figure 3.3: Look for ways to experiment new technology in payment industry
Figure 3.4: Entering PIN or registering for digital payment is hassle
Figure 3.5: Digital payments are risky and believe being a victim of card payment and mobile payment
Figure 3.6: View on service provider’s assistance and honesty
Figure 3.7: Trust in government in regulating payment system
Figure 4.1 - domestic payment network architecture
Figure 4.2 - Network structure of domestic payment system
Figure 4.3 - ISO 8583 Messaging concept ..
Figure 4.4 - Payment / transaction flow (using physical cards)
Figure 4.5 - E-commerce transaction flow (for card holders with 3D secure)
Figure 4.6 - Mobile payment transaction flow
In a geographically dispersed country like Maldives, unavailability or the quality of various services is the main concern for the citizens of the Islands. There are 199 inhabited Islands, plus 80 islands with tourist resorts in 26 coral atolls. Developing technological advancements across the globe has reached people of these Islands with availability of internet services (fibre optic, 3G, 4G, etc.) and easier access using smartphones. But they lack access to very useful sectors in the society using latest technologies such as medical services, education, banking and payment service which takes ages to reach them and continue using traditional methods. Even in the capital city, Male’, there are challenges on using some of the services like banking and payment service.
In Maldives there are eight banks registered at Maldives Monetary Authority or central bank of Maldives. Each of them operate independently based on their size. All of them support electronic payments via different mediums like MRTGS, ACH, ATM, POS, Mobile Payments, etc. MRTGS and ACH is developed and operated by MMA under its initiative to develop national payment system and promote electronic payments and all banks are required to participate. MRTGS processes and settles systemically important high value interbank transactions in real time. ACH system clears low value transactions in batches. Both of these system is mainly focused on organization level. MMA has also issued license to two additional parties to provide mobile payment solution in Maldives (MMA, 2016). But currently there is no system or a plan to cater low level interbank transactions in real time which is focused on single user or the public.
Currently there is only one bank who provide ATM service out of Male’ and that bank is Bank of Maldives (BML). BML have installed ATMs on 40 different islands which is only 2% of the inhabited Islands without including the resorts (BML, 2017). Probably providing ATM service and its maintenance is very expensive. But there are other means of providing the same services such as POS baking service by Bank of Maldives which also has the same services as ATM but the service will be provided by a selective agent or a merchant using a small POS machine. They provide this service on every inhabited Island. In a summary there 98 ATMs (of which 40 are in the outer islands), more than 5000 POS machines and approximately 250 websites using online payment gateway from different banks or payment acquirers based on Maldives at the end of 2016. The total cards transaction volume in 2016 was 15% higher than in 2015.
However, if one is to use any of the above methods to pay for a merchandise it has to be either from a card issued by the same bank or an international cards that are accepted by the merchants which will charge fee for both the cardholder and the merchant. Most of the acquirers or the merchants will support popular card brands like Visa, MasterCard, UnionPay, etc. But some of those acquirers target only on specific sectors such as tourism and others try to penetrate through the current monopolized payment industry with their own card brand and POS network. The new entrants has to pass significant barriers due to technology infrastructure-related investments. Even doing so since there is no policy to support interbank payment transactions from these channels (via ATM, POS, Online Payment Gateway) which leads several challenges to sustain on the same path for new entrants.
There are schemes or networks developed and already in operation for domestic processing of payment transactions in many countries. These schemes are designed to minimize or neglect the cost of transaction processing and settlement via international networks, provide opportunities for the new players on the field and to promote electronic or cashless transactions within the public. It will have some deep implications for existing players in the market.
It is not fair for the public and service providers to operate in a restricted environment while payment accepting and processing within their local environment when the governing body is trying to attract new service providers on payment service industry. Service providers who are already on the market will have a huge advantage over the new comers and they will not survive even with good strategies unless there is fair and equal opportunities.
Let’s take an example from telecom industry in Maldives. Until 2005 Dhiraagu was operating in Maldives for more than 15 years when Ooredoo (formerly Wataniya Maldives) started its operation on 2005. It is obvious that Dhiraagu was holding major or 100% market share at that time because they were the only telecom operator. In fact Ooredoo raise very successfully since then and both are challenging at their peaks. From the launch of Ooredoo both the customers of different networks were able to make and receive call of the other network locally. Only because it was mandated by the policy makers and agreed by the operators before commence. Otherwise Ooredoo would have faced unpredictable challenges at their early days allowing calls only within their network customers or spending much on routing calls via international carrier to Dhiraagu customers.
The same logic applies to determine the implications on other industries like Payment accepting and processing. By having a domestic payment processing scheme will not only benefit the public but also to the participants. With the help of this research most appropriate domestic payment scheme for Maldives will be structured within a single local platform.
The important objectives of this research are:
- Identify the convenience to the public or individual users of having a domestic payment scheme
- Identify the benefits on interbank transaction settlements fees and charges for banks and service providers by having a domestic payment scheme
- Propose a solution which provides equal opportunities for the payers, payment acceptors and payment processors using a domestic payment scheme
This sections will follow the significances of this study on implementing a domestic payment scheme in Maldives. Maldives Monetary Authority (MMA) has already realized the importance of processing interbank transactions and began its work on developing a system.
Under the vision of developing a national payment system, MMA has developed MRTGS and ACH on 2011 and 2012 respectively for purpose of processing high value interbank payments. This research will be focused on a real-time processing of interbank transactions irrespective of the amount. Basic idea is to provide a network for the independent banks or payment institutions to interconnect their sophisticated systems to process payments from anyone irrespective of the institution.
Most of the existing payment systems in today’s market in Maldives are secure and efficient since MMA has mandated the independent institutions to regulate and report on a regular basis. On this regard as the central bank, MMA is responsible for regulating payment systems in Maldives and providing efficient and convenient ways for the payments. I believe this research will assist on establishing a domestic payment scheme which will disembarrass the issues facing on our payment industry.
In terms of feasibility for the service providers in an industry like payment service where expensive technological investments requires will not be possible in a small population like Maldives. Based on the outcome of this research it will help the authorities or policy makers to implement required platforms for processing payments across Maldives.
Mainly the research will benefit on the focused subject of designing and implementing a domestic payment scheme which will simplify the process of payments for the individuals and alleviate the hurdles of accepting payments from all the service providers and with favorable outcome.
Besides, for the future researchers on the same concept, this research can be beneficial to improve or enhance based on more refined ideas or including the upcoming technological advances in future.
The study will be conducted within a selected individuals from the public (locals) primarily on existing people who use currently available payment methods to do the payments on daily basis and also it will include who do not use any of the digital payment systems and methods. Above all to address the concerned issue on choosing the best possible solution for processing interbank payment transactions in a trusted, efficient and convenient environment.
Outcome of the research will be a form of proposal for the required authorities without a product. Similar solutions which were already developed and practiced by other countries will be carefully studied to identify its drawbacks and loophole for an effective solution.
The aim of this study is to find out the difficulties on using current payment methods and overcome it by implementing a domestic payment scheme which is accessible to everyone irrespective of their bank of payment acceptor. This will include identifying the preferred methods of payment on different scenarios whether it is using cards or using mobile wallet and the changes and features people would like to see on future in payment industry which will be more secure and convenient such as using an integrated card payments, mobile payments, contactless payments or using biometric technology.
Technological advancements has significantly improved the service standards and improved on how we receive services on various areas. Technology has led us to receive services at ease and in their simplest forms. Such as delivering messages instantaneously with confirmation of receipt. Traditionally, it would be a person travelling from sender to receiver and again travelling back to the sender with confirmation (Mahesh B., Rushikesh T., & Anand C., 2011). With todays advanced technology everyone is nearby when communicating even though they are in two different countries. The ease and comfort is not only available on the area of communication but also it is available for us to use in any sector today. Like if we consider payment and money transfer, technology on its earliest days has acted upon on payment industry. Not with the minimal security standards but with most sophisticated systems and highest possible security standards payment industry itself invests on advancing the technology day by day. Meaning that to adopt the latest functionalities and to implement those we have to make an investment to implement latest features. So the service providers and customers will be on the same page in terms of technology and standards.
History of payments has evolved into modern concepts since we prefer convenience over everything else for paying the things we buy. Focused on the main idea of not carrying the cash with us everywhere we go, mankind has revolutionized the payment means through early coin currencies to paper money to checking accounts, and from there, to debit and credit cards, and on through to today’s mobile or e-wallets, the nature of payments has always been transactional. For example, olden days like 50 years ago paper payments systems were working fine until the number of transactions grew too high which no longer be practical by paper payments systems and rise of information technology provided the solution of electronic payments (Bob Legters, 2013). Since then payment systems continue to evolve marching towards today’s trend, mobile payment systems followed by card system of payments. Obviously the card payments achieve the actual goal of not carrying cash and still the move from card to mobile is driven by the same idea of finding an easier, better, and more secure way to pay for the things we buy. Trending virtual currencies or cryptocurrency believed to be the future money and digital code (Blockgeeks, 2017). Consumers using mobile payments today still carry cards in their wallets because they feel that merchants are not ready yet even though the infrastructure already in place (Bob, 2013).
As we can see from history making a behavioural change is never easy on payment industry but it is do-able taking into account the advantages of such change for both consumers and service providers (issuers/merchants). Even on the case of mobile payments or card payment a domestic payment system will play a huge role in terms of convenience. The high cost of settlement charges via international for domestic transactions performed via international networks due to unavailability of a system processing domestic transactions is the major issue for various charges reflected on cardholder’s account statement. It may be international transaction fee, currency conversion fee, etc. based on the issuer or bank. Implementing a network accepting international transaction for every party will not be feasible due to the technical sophisticated requirements and especially it involves huge investment. For exiting players who are widespread in their service it might not be a factor. Besides, study shows that smaller merchants or businesses pay on average 60% to 70% higher fees than those paid by larger merchant’s reason being not having domestic payment processor (Standard Chartered, 2014).
Looking into successful or already implemented and implementation ongoing domestic payment system in various countries, they choose convenience to customers as one of the primary aim considering the societies culture and standards. Some has chosen card based domestic scheme or mobile payment domestic scheme, etc. For example BLIK, Swish, Rupay, SPAN (Saudi Payments Network), etc.
BLIK is a service launched in early 2015 in Poland which enables customers to use smartphone to make payments in stores and online, withdraw cash from ATMs and send P2P payments between customers of all participating banks (Piotr, 2016). It is a different concept when compare to mobile wallet (think Google Wallet or Apple Pay) because it does not involve credit or debit card but links directly to the customer’s bank accounts (current/saving). The card is excluded from the scheme to prevent monopolization of known operators. BLIK was implemented by a company which was formed by Poland’s six largest banks.
Paying with BLIK does not matter if you want to pay online on a website, in a shop on the street, or withdraw money from an ATM. In the customers banking app there will be a BLIK icon through which a 6 digit code valid for 2 minutes can be generated. During this time the code can used in POS, on checkout screen on the web or on ATM screen. After submitting the code the mobile app will ask for confirmation, if the transaction amount is higher than 50 PLN user need to enter a PIN. For P2P payments only the phone number of the recipient is required and the money transfer will be ready to go. BLIK is that simple.
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Figure 2.1: Transaction flow in BLIK (source: linkedin.com)
Based on BLIK’s first year’s statistics, BLIK is accepted in 30% of all POS, and in 65% of all ATMs in Poland. 2.5 million Transactions were performed with 1.7 million registered users and daily more than 10,000 transactions were attempted.
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Figure 2.2: BLIK statistics (source: linkedin.com)
BLIK has advantages in terms of customization since the product is tailor made for the Polish market and uses the local infrastructure and controlled by local authority. To be a more productive or a successful product BLIK has to integrate with other local market products with other domestic service providers from different sectors. It also need to maintain a stronger governance model which allows for great local input. And in a globalized world focusing only on local market can be a showstopper BLIK needs an international strategy (Piotr, 2016).
Swish is a mobile app in Sweden which enables individuals to quickly, simply and securely send money to other users in real time by connecting mobile phone numbers to bank accounts. Created by a consortium of largest Nordic financial institutions in December 2012. Swish is the most popular Fintech app in Sweden with 52% of population using it in 2015 (Etienne, 2017).
Swish is a C2C peer-to-peer money transfer app works instantly and free of charge. To use Swish app a Swedish bank account is required with safety solution mobile Bank ID, unified and trusted payment infrastructure. User only needs recipient’s phone number to transfer money and only works with SEK. Swish expanded its coverage to businesses with minimal per transaction charges since there is a market for B2C. Swish has launched e-commerce and m-commerce support in 2017 where it allows checkout options on merchant website and on merchant apps. For website checkout customer needs to enter his/her mobile number connected to Swish but in m-commerce the Swish app will be opened automatically once customer chooses to pay with Swish using 3rd party merchant apps.
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Figure 2.3: Transaction flow in Swish (source medium.com)
Swish has shown an astonishing user growth adding approximately 100K users per month with a total of 5 million users in less than four years (equivalent to 50%+ of the Swedish population) in November 2016.
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Figure 2.4: Swish statistics (source medium.com)
Most prominent features of Swish are free, secure, instant and mobile first payments. Every product can be improved or can implement additional features going along the way. Despite the fact that Swish was primarily used for transfers between two persons, Swish has implemented e- commerce and m-commerce. An important feature is yet not available in Swish that is International domination. For a service like Swish it will be very complicated for internationalization. Since new services are rising to stay on the same track Swish needs a strategy for cross border transactions (Etienne, 2017).
China UnionPay (CUP) is China’s domestic bank card organization, the association for China's banking card industry and the only interbank (domestic) network in the country, owned by around 85 banks. CUP was established in 2002 by the People's Bank of China (SuccessStory, 2017). UnionPay has linked all the big and small cities in China in its network by using bankcard networking merchants, POS terminals and ATM machines. It links all the ATMs around the country and its cards are even accepted by the ATM machines in Macau and Hong Kong. China Unionpay is not only a domestic bankcard service, it operates in about 141 countries across the globe. The bank cards work in ATMs across Europe, America, New Zealand and Australia.
In 2005, UnionPay signed a long term agreement with Discover Network. This association has resulted in acceptance of UnionPay cards in the PULSE network that is connected to USA. This has also allowed the acceptance of all Discover Network cards in the ATMs and sales counters in China. In 2012, PayPal, the secure payment portal, got into a partnership with China UnionPay.
China Unionpay enables inter-bank transaction settlement between associate banks without differentiation in region and border. Professionalization and intensification of bankcard industry is the main objective of China Unionpay. This is being done by card-issuing data processing, internet security certification, bankcards and terminals testing, and bank card points. The major objective of the company is formation of new industrial system that aids in inclusive and quick development being World’s Second Largest Payment Network after Visa. More than 3.5 billion UnionPay cards issued under UnionPay, 200 million cardholders use UnionPay online and more than 150 card issuing banks support UnionPay in China (SuccessStory, 2017).
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