I am often asked this question, specially in the context that my career choice has nothing do with my B.Tech. degree. I feel like recounting some of my experiences from my IIT life, which taught me a great deal and played a key role in shaping me as a person and have directly or indirectly helped me in my professional life as well.
Today I will recount a story from my 2nd year of IIT life, but before we get going, some background. People who are familiar with life in IIT Bombay or have seen Chhichhore know the competitive spirit between hostels when it comes to extracurricular activities. While Chhichhore talks about sports GC (General Championship), my story is more about Cult (cultural) GC.
I was in hostel 5 and at the end of my first year, when annual awards were being distributed, my hostel had won only one trophy. This trophy we won was in bridge, because we were fortunate to have one ace bridge player in our hostel. I was sitting in the crowd thinking why cannot our hostel win any awards. I told my friend sitting beside me that next year I will make sure our hostel wins at least one award.
With this conviction in my mind, I became dramatics secretary of my hostel and with the help of everyone in the hostel managed to win almost every inter-hostel dramatics event that year. Now coming back to the story.
The biggest inter-hostel creative event in IIT Bombay is called PAF, which is short for Performing Art Festival. In this event 2/3 hostels are paired together to put up a live play at the stage of Open Air Theater (OAT), witnessed by thousands of fellow students and other campus residents.
We design giant sets using crates, tables, newspaper and bamboos to facilitate the performance. I along with another senior from hostel was in-charge of set piece on center stage. The center stage was supposed to be the lair of a tantrik. The creative team gave us a design of a throne, which was supposed to be the main attraction of center stage. The design given to us looked something like this:
We had three days to design it, so we analyzed all the material we had and started working on it. We were having second thoughts about how the audience sitting in the OAT be able to appreciate the center piece like this and decided to be creative about it. At one point, I suggested checking with the creative team. To this my senior replied, “har kaam puchh-puchh ke nahi kiya jata.” (We need not ask permission for everything.)
So we kept working on our vision and kept learning and improvising at every step of the way. First we thought maybe we should make the skull bigger, if that was the main attraction. Then we decided that maybe instead of making a chair with skull on it, we should make a cave in the shape of a skull, where the character will sit inside its mouth.
While making it, we realized that mouth could not be made big enough for a person to fit. So, we decided to make nose of the skull big enough for a full size human to fit in it and designed steps for him to climb up and down. What we ended up creating was this.
We did not stop at that. We made the jaw of the skull movable, so when the villain laughed the jaw of the skull moved. (we made someone sit behind the skull to do this, since all our engineering efforts failed to produce results in time.)
I along with another friend sat behind the black curtain inside the two giant eyes and when the tantrik got killed we dropped red color, making it look like tears of blood.
That year along with winning the dramatics trophy, we also won the best PAF. The effort we had put in resulted into us winning best prop trophy.
Someone has uploaded a video of the PAF on Youtube (quality is very bad though), if you wish, you can watch the entire performance there.
If it is still not clear, what I learned from this experience, let me state it explicitly. I learned that if you are clear about the objective and are ready to learn and adopt, with belief in your own ability, you can end up achieving more than what you imagined to begin with. Don’t lose sight of the end goal. As long as you are clear of the bigger objective, finer details are not rules cast in stone but general guidelines.
In a recent communication RBI has pointed out the need for supporting digital transactions in offline mode in order to overcome the handicap of “lack of stable connectivity” as a hindrance to digital adoption. I thought it is a good time to talk about offline authorization, when it comes to processing payment transactions.
Some definitions first:
Authentication: Every payment transaction goes through two steps, authentication and authorization. Authentication is the step that validated the card user. Historically for transactions done using card plastic, this step was performed by taking signature of the customer on the merchant copy of the transaction slip. Then in order to ensure better security, RBI mandated the use of PIN inputted at the encrypted PIN-pad of the point of sale (POS) terminal.
For transactions performed without the plastic, i.e. used on a website, mobile app etc. this step is taken care of by asking the user to input a transaction password or OTP on the authentication page.
Authorization: Authorization is the step that validates the availability of funds. It is this step that is responsible for posting the transaction in your account.
Settlement: Settlement is the step that is responsible for movement of funds from Issuer Bank to Acquirer Bank. As part of this step the merchant claims the money from the acquirer bank and acquirer bank sends this claim to Visa/MasterCard/RuPay, which they then share with respective issuers for processing.
In online transaction scenario authentication and authorization are performed in real time, while the settlement is an offline step, that happens by exchanging the transaction data through the network and does not depend on connectivity at merchant location.
Offline Transaction: When a transaction is processed without connecting to issuer bank’s system in real time. This means the debit in your account will not appear immediately at the time of transaction.
There are two possible ways they will appear in your account, first is at the time of processing settlement, the issuer bank as part of their reconciliation process identify all the transactions where authorization was not performed online, but a settlement was received and post these transactions in customer’s account after reconciliation.
Second possibility is by syncing the offline transactions stored at the card/app next time the card interacts with another POS terminal that has connectivity or app finds the network connectivity. Don’t worry, will try to explain it in more details below.
This offline method of processing payment transactions has been in use in many countries but not in India. There are two primary reasons we did not see such transactions in India, (Transit cards and FasTag are two cases, where India does use offline method). First is low risk appetite. These transactions are riskier and there is possibility of more disputes and even possibility of loss to banks. Second is India is primarily a market driven by savings account and not credit cards. In savings accounts banks pay interest that means if a transaction is processed offline and is posted at a gap of few days to customer’s account (traditionally the gap between authorizations and settlement could be few days in many cases) the bank would in effect be paying interest to customer on money that she has already spent.
Floor Limit: Many countries have this concept called floor limit. What a floor limit means is at certain merchant categories payment transaction can be processed without online authorization provided transaction amount is below a certain amount. This amount in card terminology is referred as floor limit. So far floor limit in India has been Zero. Now from what I understand RBI is planning to make this floor limit as 200 Rs. That would mean any transaction below 200 Rs, processed at specific merchant categories will not require authorization from issuer bank. This transaction will be approved and stored at the terminal level and will be sent to acquirer at the time of settlement.
In this case no authentication or authorization is performed, just the details of the card are captured so that the claim can be prepared for settlement.
Now imagine if this was done few months back, would we have even needed FasTag. One of the very popular use case for this floor limit globally is toll payment.
EMV Cards: I am not sure how many of you know this but besides EMV being more secure, one of the reasons EMV was introduced was because of its capability to process transactions in offline mode, thus avoiding the need of sending every transaction through network and save on cost of communication. For countries where telecom cost is high, this could mean significant savings.
EMV protocol supports offline mode of transaction processing by provisioning for offline PIN, something that can be validated at card itself, thus taking care of the authentication step. There are various other parameters like last known balance (i.e. the balance at the time of last online transaction), cap on number of transaction (total number of transaction that can be approved at card chip level before it will force the transaction to go online. For example if this parameter is set up as 4, the chip will force every 5th transaction to be online. This 5th transaction will carry with it all the other past offline transactions thus syncing the issuer systems in the process.) and amount (cumulative amount up to which the chip on the card can process transaction in offline mode. Similar to the cap on number of transaction the moment this threshold is hit the chip forces the transaction to be processed online). From what I have read, it looks like RBI is proposing to set this amount limit at 2,000 Rs.
Most of the systems at banks these days are capable of the methods described above and should be able to implement without making much changes, thus can be rolled out fast.
Similar principles can be used in order to build the capability for other modes, which do not follow card protocol. In fact in case of modes like UPI, where a mobile device is involved this can be done in much better way considering unlike card a mobile device in capable of connecting to the issuer directly as soon as it finds network.
How a sixteen year old me navigated through coaching classes in Kanpur with almost no money to prepare for IIT JEE and managed to sail through in my first attempt.
I prepared this on request of my friends from ExtraClass to help their students in these uncertain times. Hopefully this will motivate kids preparing themselves for competitive exams in particular and life in general.
There is nothing unique about acquiring customers by offering something extra for free, even our vegetable vendors have been doing this for ages. This is the reason he throws in those extra curry leaves in your bag whenever you buy vegetables from him. How often though have you seen a vegetable vendor giving away curry leaves for free but no vegetables to sell. Right now that is the situation of CRED. They have a customer acquisition strategy, but no core business model.
In my last post I talked about CRED transforming into a digital mall and offer their digital real estate for a fee to various D2C brands, however the unique part about these brands in D, they want to sell direct to the consumers by cutting the middlemen and pass on that value to the customers because internet has made it possible. Introducing CRED as a middle party defeats the whole D part of D2C. Also when the nearby shop with same footfalls in available for almost free, why would any brand pay high value for opening the shop in the Mall. This is the digital world. These brands when they are new might use CRED for few months of promotions and then divert the customers to their own digital shop (app or website) rather that sticking with CRED forever.
I think CRED team has also realized this and that is why they are now trying to pivot into becoming a fintech by offering services like rent payment and consumer loan. There have already been many rent payment options already existing in the market like Red Giraffe and No Broker, who even offer better deal than CRED in terms of transaction fee. Rent payment on Credit Card is something I would personally not recommend, however if you are a super premium card holder with superior reward program like more than 3% cashback or something similar then paying rent through CC may yet make some economic sense, however there are not many card holders that fall in that segment, and many who do are likely not living in a rented house.
Now on the consumer loan part, as of now as per my knowledge CRED is not an NBFC and offering this in partnership with some other lender. The problem with this option is that entire customer base of CRED is already eligible for a better deal offered by his/her bank. Some people say convenience may drive CRED users opt for the option offered through CRED than their bank, well in that case you do not understand the Indian consumer. First of all Indian consumer, no matter how rich prefers the option that gives him/her better value also CRED themselves don’t believe in that convenience hypothesis, that is why they sell themselves as “most rewarding way to pay your Credit Card bill” instead of “most convenient way to pay your Credit Card bill”.
Please also note that the customer base of CRED is the same customer base that banks also treasure. They typically get a dedicated relationship manager or personal banker. Banks will not let this customer get away, and even if by some odd chance CRED sees some traction in this regards banks may even try to block CRED something like what few banks did when they started seeing wallets as a threat.
So in the current situation they have nothing going for them in terms of a visible business plan hence they are spending all their energy on UI/UX, someone in the boardroom might be like “at least make it look premium so that the customer sticks around”.
Now question is what they could do, the only thing that comes to my mind is they can become a discovery platform for semi-luxury lifestyle goods, however with the economic slowdown caused by this pandemic, this semi-luxury consumption will see a steep downfall. My definition of semi-luxury is luxury items for upper middle class.
While I rarely held the title of Product Manager, I spent most of my career as one. During my stints as part of Business Solutions Group in Banks, my role usually was to design solutions for the concepts raised by product or operations teams. I still took it upon myself to launch various initiatives on my own, throughout my career. In simple words I was the solutions guy who didn’t wait for someone else to identify the problems to work on them. When I look back, these initiatives were the best part of my job, specially when I see some of them have become industry standards now. In this post I am trying to look back and analyse, what worked for me. Hopefully this will help people who are working on Product roles or aspire to become one.
Spend considerable time with your users: Spending as little time as possible at my desk was one of the key features of my work-day. I would rarely be sitting at my desk, instead I would go to operations floor and spend time with teams there. I would sit with them, talk to them, watch them work and observe their day. One obvious benefit of this was knowing my users and his work-day. What my users appreciates and what irritates them. This also helped me empathize with my users. When a user would complain about some problem in the system I would take it seriously instead of trivialize it because I would know how much it affected her/his daily routine.
Another benefit of this was that I became the go-to person for them whenever they faced any issues. They trusted me and saw me as their representative inside the IT team.
The result of this was that with time I managed to automate most of their operational activities. The reconciliation system that I worked on with the help of our direct banking operations team is being sold internationally by that vendor and controls almost 85% of Indian market.
Talk to customer service team and study customer complaints: I was not only responsible for building solutions for operations team but also direct banking channels products used by bank customers. The first thing I did after joining bank was to find out the customer service head and set-up with a meeting with his team. I made sure they knew me and found me approachable. With-in months I managed to train them enough to address most of the customer complaints at their level itself.
The biggest advantage I got out of this was, whenever they got a tricky customer complaint, I was usually getting copied on them. I would try to analyse the complaint and sometimes these complaints resulted into redesigning our CX or a new feature.
I got the idea of introducing most of the debit card related support functions via net-banking through this. Now every bank is doing it because it is the most obvious thing to do. Sometimes obvious things are hardest to get attention though.
Spend time with your vendor/development team: If I was spending 30% of my work-day at my desk, rest of the time I was distributing between my operations teams and vendors/tech team. I would sit with my vendor, ask them questions about how a particular setting affected the system behavior. Sometimes, if I got a chance, I would even sit with them analyzing the code. This last part usually would happen on holidays, when I would call them to office with promise of drinks and pizza afterwards.
This made me aware of what the systems we were using were capable of and the speed of introducing any change in the system. If you have worked for any large organization, you would know that introducing any change in core systems is frowned up on, specially for smaller impact items. Hence my objective used to be to get thing done with zero to minimum changes in the core systems/processes. Knowing the systems capabilities and good equation with vendor teams helped.
When we decided to launch mobile payments in partnership with mChek way back in 2006/07, I could do it with zero code changes in our core systems. By the way this solution was designed for basic phones and I used mobile device as a factor of authentication.
Testing: During my early days one of my key responsibilities was testing and I used to hate it. I used to think that have I graduated from IIT to do this but with time I understood how important it was for my learning and growth as a product person. Testing gave me the opportunity to be the user. It would help me play around with the system to explore the capabilities of the system. It also helped me plug any process changes that need to be introduced or any user training required before we launch the product/feature more efficiently.
Once I understood the benefits of it I started spending time on our test systems voluntarily also. When my bank decided to have separated dedicated team for testing and also worked on testing automation, I insisted on my team still participating in the testing process. There is no better way to learn and experience actual user interaction.
Once when I was in a senior position in my organization and didn’t have to do testing myself, I decided to test the launch of new version of mobile app. I downloaded the app, log-in was with mobile number and OTP. OTP was being automatically read by the app, so no input from user. Yet I got error “Invalid OTP”. I tried again and this time it went through. I tried to probe further and noticed that the OTP in first attempt was 0431. I understood, what the problem was. I got the development team to check the field classification and got it changed accordingly. This was such a trivial and accidental discovery, with potentially huge impact. It also made me realize that even after 12 years, testing can throw these kind of surprises.
Be friends with Security, Risk and Audit guys: This is specially important because I was building products for one the most highly regulated industry prone to frauds resulting into real financial losses. This made me take regulatory aspects into account while designing a solution. This also made me appreciate and keep in mind fraud trends and how to control them at design level itself.
Things like KYC-AML, PCI-DSS and their impact on your product/feature are very important in your journey. There were projects where we had to factor regulatory reporting as key aspect of design process.
When I was working on GreenPIN project, this came in very handy. Things like you can/should not send a PIN over SMS, a card PIN should always be inputted on an encrypted key pad, J & K customers could not receive SMS etc were important aspects.
Be curious and keep experimenting and analyzing: Always analyze the data that is available. Data will tell you how your customer is interacting with your product/feature. Which features are loved by your customers and which are ignored. Data can often show you very interesting positive/negative ways your product/feature is being used and you may have to take some actions accordingly.
Get access to that test system and keep experimenting. Play around with parameters and observe how it affects the behavior.
Once I was observing data of one of innovative products launched by our bank and I observed that few of our customers were accessing that feature everyday doing a part of the action and leave it halfway. On further investigation I realized that they were trying to game the system into gaining unfair rewards. I immediately initiated a change in the system to plug this gap.
I am sure many of you would have already known most of these and were doing these things. Some of you probably knew and didn’t do, for them I have thrown examples of how exactly these things have helped me in actually real life situations. Hopefully people who want to become product managers or become proactive solutions guys may find this useful.
CRED is one start-up, which has been getting a lot of media attention since it was launched by its charismatic founder, who in his previous avatar founded a very interesting start-up and gave a massive exit to his investors, when that start-up got acquired by Snapdeal. VC world loves a successful exit, for very obvious reasons. What do they love more than that though? They love it even more when the same founder offers them another chance at yet another successful bet. This time the confidence is higher, the dreams are bigger hence the bets are also bigger. Thus starts the journey of CRED.
Now most of us reading this post know about the massive funding round raised before even the launch. They are also aware of subsequent massive funding rounds before the start-up has even made any revenue. However there is one question in everyone’s mind. What exactly is CRED? Some call it a Fintech, while its own founder used to call it a Lifestyle company; some are still clueless. Very recently I read someone calling it an status symbol also. To that I jokingly mentioned that now the investors must be dreaming about it becoming the Louis Vuitton of the digital world and how they are now looking at another spectacular exit. Some may have even started planning, what they would do with this massive windfall.
I, like every other curious minds in start-up and Fintech space, have paid attention to CRED. Despite having no use for the base service it is offering, I yet downloaded the app. I even referred it to my wife to check what exactly is happening with their coin offering. One thing is for sure. The app is good to look at. It is one app, that I check from time to time without ever needing to use it for any purpose. I am someone who likes to keep things clean around myself, meaning when I don’t find the need for an app for a prolonged period of time, I just delete it. This is one app, I still keep. It’s just that good to look at. Design team of CRED, take a bow.
Let me start with a small story. Recently I was invited by my alma mater to mentor their budding entrepreneurs in the campus and I met this team of very bright young men still in their 2nd year of B.Tech. They are working on building something focused on students living in various campuses, so that companies wanting to advertise to that specific group of people can use their app to run campaigns on their platform and they can earn from these advertisers, while offering all the services to their users for free. They had thought of a bunch of services they were planning to offer. These services were all needed by students but not correlated or complimenting to each other in anyway.
I asked the team,”who is your customer?” They answered,”students.” I told them,”well, your customer is who pays you. While students are your users, your customers are the advertisers.” Then I tried to explain it to them using obvious examples of Google and Facebook and how the service they offer to their users is a mean to acquire user base, because their service is not their product. Their user base is their product. Then they find creative ways to sell this product (user base) to their customers, who are the advertisers.
I told the team that their thought process is in the right direction, however they should not focus on building ten services from the beginning. They should pick one to begin with, that they find most appealing and engaging to their potential user base and use that service to acquire as many users as possible. They may end up building all those service in the long run, but they should find an organic path towards it.
At this point in the discussion I invoked CRED. I told them while Facebook, Google and many more have built useful services to acquire user base for selling them ads, Kunal Shah is one brilliant mind. He noticed that in today’s market scenario the easiest way to acquire customers is offering them rewards. So instead of putting too much efforts in creating a service offering, he just picked up the common attribute of his target customer base (credit card) and offer them rewards for the very reason of possessing a credit card.
Under normal situation, one would spend resources building a service, then spend further in marketing and customer acquisition. This entire exercise will require a lot of money. Why not use that very same money to offer rewards to people and acquire them. Sounds simple? Well; it is. Now you can acquire the customer with this strategy, how you keep them engaged? Two ways, make the reward recurring (earn points on paying your monthly bill) and introduce gamification (lottery).
How do you make money now? The big question. Now that CRED has acquired a large number of customers who like to spend on lifestyle expenses (credit card users), next step is to connect Lifestyle brands to these customers. Imagine I run a premium coffee chain, opening a new outlet in Powai. What is the best way to market it? Whatever your answer is, unless it is CRED, it’s wrong answer. All you do is create a campaign for users living/working in Powai and surrounding area (200 Rs discount on your first visit up on burning 50,000 CRED points). Maybe you are launching a new premium FMCG brand. Create a campaign on CRED (spin the wheel to get 10-70% discount on your first purchase).
Why all the earning and burning points then? Well as I said Kunal is one of the smartest brains we have around. His offerings are designed based on users’ psychological needs not your mundane obvious things like paying your bills and all (this is probably the reason some people have called it a status symbol). All this earning and burning completes the loop and you are the hamster keeping the loop moving. It also makes this customer acquisition loop an opt-in. CRED is not into the business of selling your data. You will have to opt-in for the offer.
Just in case you have still not understood, how the money will be made; let me state it clearly. Each brand spends on customer acquisition, today they may be utilizing all the money they would be getting from brands for creating the offers, but they can always increase their margin. If the coffee chain offers you 200 Rs per customer acquired, you can make the offer 100 Rs discount instead of 200 Rs. Or spin the wheel. It may even go Google Pay’s “better luck next time” direction if there is too much pressure to generate revenue. Right now it looks like they have enough cash to keep on burning.
Some people may have question on why then they recently started rent payment and lending offerings. COVID is expected to hit the non-essential lifestyle expenses the hardest. With this situation, people will be less interested in visiting a new coffee chain or trying out new expensive face cream. That means the whole “Lifestyle company” business will slow down. These two recent offerings are attempts at offering something that is related to essential needs to its customer base.
He has not done this for the first time. Even Freecharge was same thing, targeting a completely different customer base though. You can say CRED is affluent person’s Freecharge. I think Freecharge had potential. When Snapdeal acquired it, the deal made some sense to me but when Axis Bank acquired it from Snapdeal, I knew it was a mistake and I also knew Axis Bank did not have any clue what Freecharge was all about (Axis Bank thought it was a Fintech, probably). This made me conclude that a Kunal Shah business can only be run by a Kunal Shah and there are not many Kunal Shah out there. He has an amazing understanding of how human psychology works and he uses this knowledge beautifully when creating his offering. So as long as Kunal is at the helm of CRED, it has the potential to grow into something unique and extraordinary and if he decides to sell it; there is a big chance it will also end up like Freecharge i.e. people in-charge of it having no clue what to do with it.
PS: Last night I heard the episode of Cyrus Says podcast with Kunal Shah, that more or less confirmed what I have written above. He also mentioned about a Mall that opened in Mumbai many years ago, which allowed entry only to people possessing mobile phones, cars or credit cards. So maybe he is trying to create that mall digitally. He has got the customers in the Mall already, he is waiting for brands to open their stores in this Mall and pay him rent for using his digital real estate.
PS 2: While I agree with most of the point he made there is slight deviation on what he mentioned about India being a low trust society. It may be true for cities, for whom most of the techies are building offerings, but I when we move beyond cities to smaller towns and villages, India is an extremely high trust society. I may be wrong, but being born in a small village and growing up in smaller towns my experience has been such.
FASTag is part of NETC (National Electronic Toll Collection) program by NPCI designed to provide an interoperable method of toll collection across the country irrespective of the acquirer, simple meaning that your FASTag device issued by any issuer will work on any toll plaza across the country irrespective of its acquirer. That is the benefit you get when working with NPCI.
Couple of days back a friend working in transit payments called me to understand how FASTag works. That call gave me impression to write this post. Here I will be explaining the transaction flow of a FASTag transaction in simple terms:
What is FASTag?
FASTag is a RFID tag that stores static information like TAG ID, which can be read by the receivers installed at toll plazas.
How it is issued?
FASTag can be issued by any NETC member banks and it is linked to either your Current or Savings account maintained with the bank or a prepaid account created by the bank for this specific purpose. My bank gave me a prepaid account with separate credentials for inquiry and other financial transactions. In my opinion it will be wise for fleet companies to link FASTag for their vehicles to current account maintained by the company.
At the time of issuance a TAG ID is created, which is then linked to a CASA Account or Prepaid Account, depending on the implementation at your bank and your vehicle details like vehicle type (car, truck etc.) and category (personal, commercial etc.). TAG ID along with Vehicle details and Bank ID are then added in NETC mapper maintained by NPCI. As soon as your details are updated in NETC mapper, your FASTag is ready to use.
How it works?
Step 1: As soon as RFID tag affixed to the windshield of your vehicle is in range of the acceptance terminal installed at toll gate, terminal read the TAG ID and Vehicle Details and send them to acquiring bank
Step 2: Acquiring bank sends the details received from the terminal to NETC mapper,
Step 3: NETC Mapper validates the details collected from the TAG and responds with TAG Status. If TAG Status is active, it proceeds to next step else driver needs to pay cash. Other possibilities could be TAG is not registered yet (new TAG), TAG is blacklisted etc.
Step 4: After successful validation of TAG details and status, Acquirer system calculates the toll amount to be collected and sends to NETC Mapper.
Step 5: NETC System sends the debit request to issuing bank, based on the issuer bank ID maintained in the Mapper.
Step 6: Issuer system processes the debit into customer’s account linked to FASTag and sends response back to NETC system. In case no response is received with-in the defined time-out period it is assumed to be approved automatically.
Step 7: NETC System sends a notification to the acquirer system
Step 8: Acquirer system sends notification to respective toll plaza system
This transaction is performed in offline mode with systems syncing every 10 minutes. This means that by the time Step 8 happens your car is already far away from the toll-plaza. Once the TAG ID is validated and its status is found to be active, it is assumed that there is enough balance maintained at the bank’s end to settle the transaction, which happens at every settlement cycle and facilitated by NPCI through a system called EGCS (ETC Global Clearing and Settlement).
NPCI basically collects the money from issuer banks and distributes it among acquirer banks as per the transactions processed during the settlement cycle. Acquirer bank then settles the funds with respective toll plazas.
What happens if your account does not have money?
Since the value of toll is usually small and syncing cycle is ten minutes, the exposure due to lack of funds in account is very limited. Having said that banks have a provision of keeping a security deposit for safeguarding themselves in any such possibility. In case your account does not have necessary funds to pay for the toll, same is deducted from your security and your FASTag is blacklisted and updated in NETC mapper to stop further transactions on that TAG till balance is maintained again.
My bank has taken 500 Rs as security deposit. The assumption is that for a private vehicle to pass through so many toll plazas with-in 10 minutes is practically very remote. I am assuming for heavy/commercial vehicles this security deposit would be higher. In case of fleet companies having multiple tags linked to same current account there might be a special arrangement negotiated with the issuer bank.
How to reload a FASTag account?
In case it is linked to your savings or current account, there is no question of separately reloading the account. While my bank doesn’t offer me this option, I am assuming, whichever banks would be offering this option must be keeping some cap on the amount from safeguarding perspective.
In case of prepaid account set-up like my bank, I have been given multiple options to reload. Your bank may even offer an auto-reload option where, if your balance goes below a particular threshold bank can initiate a reload by debiting your linked account or card that you may have provided while setting up the FASTag account.
This is the simplest explanation I could come up with for FASTag transaction flow that is easy to understand by most and also explains how it can be achieved at the speed of traffic i.e. your car practically doesn’t need to stop at the plaza for deducting the toll. This is unlike the regular transit card solutions where balance is usually maintained at the chip inside the card and offline balance is updated at the time of transaction.
In my last post I had touched upon the entire authorization piece for card transactions and how it makes sense to have MDR for Credit Card transactions however it feels unreasonable when it come to Debit Card transactions. Today I will explain the settlement aspect of transaction and try to make sense of MDR charges based on settlement flow.
How settlement for a card transaction works?
After transaction is completed merchant claims money from the acquiring bank. Acquiring bank further sends a file to Interchange and Interchange gets the money from Issuer Bank. This entire cycle traditionally used to take days.
Acquiring bank is making a guarantee to the merchant and based on that guarantee, they process the transaction. Interchange is giving the guarantee to acquirers. Meaning in the event of an issuers inability to pay for a transaction done by its customer the interchange will ensure that the acquirer gets paid for the money they have paid to the merchant.
Above risk is high if you assume settlement cycle spread across many days. However in today’s fast paced world the settlement cycle is shrinking. We are practically settling the transaction with-in T+1 days. There are continuous attempts to shrink this cycle to make it even near real time. If that happens the risk by acquirers and interchange is going to be practically zero.
Many debit cards in the market even follow a single message settlement protocol similar to ATM transactions. In this case there is no need for merchant to process any batch settlement. The settlement is processed automatically by default.
This risk taken by acquirers and interchange on top of supporting the ecosystem with their technology and operations is additional justification for them getting a share of the transaction fee, however this still beats me, why the fee should be paid by the merchant and not by the issuer.
The merchant is the first one to go out of pocket (he has sold the goods without money in his/her account) hence contributes to zero risk in this entire ecosystem. Customer is using his debit card meaning he/she is using the money that he/she has parked in the his/her account already, hence not contributing to any risk. At the time of transaction the money is debited from customer’s account and parked in a payable account by the issuer bank. It is this account that is used to settle money with the interchange.
If a issuer bank has managed to get into a situation somehow (recent Yes Bank situation) that they are not able to settle with the interchange it is definitely not because of the customer and/or the merchant, hence in all fairness it is them who should fund the entire ecosystem from their income through deposits and not fleece the merchants.
If you want merchant to pay MDR, issue credit cards and give enough incentives to your customers to use them. If customer prefers to use his/her debit card instead, it is ideally his/her bank’s responsibility to offer necessary ecosystem to access his/her funds. Always remember the issuer banks are already making profits by investing this money parked by customers in their CASA.
Four years back RBI suggested some reforms in this consultation paper however no action has happened in that direction. What I am suggesting is not exactly the same but fundamentally both are using the base analogy that the benefits are currently unfairly tilted in favor of issuer banks and it is these issuer banks who should bear the most of the burden instead of expecting other players in the ecosystem to fund for the infrastructure needed for its customers to access funds parked in their accounts in these banks.
Recent growth in this ecosystem was fueled by VC/PE money, which may not be available in same proportion given the current global slowdown caused primarily by the Coronavirus pandemic. This means some key players will find it extremely difficult to survive and it will not be good for the overall digital payment ecosystem. It is in the interest of issuer banks to save this ecosystem by taking ownership of the costs involved. If that doesn’t happen, only players surviving will be the ones with deep pockets not the ones with better innovation. This will eventually kill the innovation in this space and steer entrepreneurs away from attempting new/innovative solutions in this space.
So much chatter going on in Indian market around MDR, short for Merchant Discount Rate, thanks to NPCI making MDR zero for RuPay debit card transaction based on instructions from Finance Ministry. I had touched upon this topic once before here. However now coronavirus pandemic putting extra pressure on most of the businesses including payment facilitators, this topic is again making rounds. I felt like I should put together one post explaining my views in other post where I have supported the move of zero MDR.
First thing let’s talk about what is MDR and why it has been there as a key source of revenue for payment providers. MDR is the money that is paid by the merchant to the payment ecosystem used in facilitating the transaction. All the parties involved in the value chain i.e. acquirer, interchange and issuer get their share from this MDR including the third party technology or operations service providers used by these parties. MDR is typically a small percentage of transaction value, somewhere between 0.8 percent to 3 percent. Essentially what it means is that when you pay a merchant 100 Rs using your American Express credit card, the merchant actually gets only 97 Rs, while the 3 Rs are used to pay everyone involved in facilitating this exchange.
Now why would a merchant agree to take a cut in his/her income to facilitate this after-all it’s the merchant who drives the mode of transaction and not other way round. How often have you refused to deal with a merchant because he did not accept your credit card? You find a way to pay that merchant accepts and move on with your purchase. Then what is the answer? In a credit card world card company is facilitating the purchase by offering an instant credit to the customer thus taking a risk on the transaction, this risk taken by the issuer enables the purchase to go through, which may not have happened in case the credit was not issued at the time of transaction. Now here is something for the merchant to gain, he is gaining a sale, which may not have happened otherwise. That is the reason merchant doesn’t mind paying that MDR. Now issuer alone cannot support this massive ecosystem, so parts of this MDR is distributed among other participants in the ecosystem.
If the MDR was for supporting the technology and operational cost for running the ecosystem, it would have been a flat fee and not a percentage of the transaction amount, because cost of processing a transaction remains more or less the same irrespective of the transaction amount. So primary reason a merchant agrees to pay an MDR is because issuer is taking a risk on the transaction by issuing an instant credit in order to facilitate the purchase. Bigger the amount, bigger the risk for the issuer.
Then industry launched debit cards in order for customers to access the funds parked in their savings and current accounts. Instead of reinventing the wheel, they decided to ride on the same infrastructure set-up for credit cards to facilitate debit card transactions as well but then they got too lazy and even copied the same MDR based business model. In case of debit cards customer has already parked funds in banks and banks are making more money from that money and it is responsibility of banks to facilitate access of funds in his/her bank account to its customer. Banks do not want customers to line up in the branches because that is the most expensive mode of transaction for banks, in order to save that cost banks have set up digital infrastructure to provide easy access to customers, this also includes POS/Payment Gateway infrastructure.
I am of the view that MDR model is fine for credit card universe however it does not make any logical sense for debit card transactions and issuer banks should bear the cost of these transactions instead of passing that cost to merchants or customers in anyway. Issuer banks should pay interchange and acquirers on fixed fees basis, then acquirers should compensate their technology and operations partners from their share. Interchanges as the bodies at the center of all this should facilitate working of a reasonable compensation mechanism for sustainable ecosystem growth.
Since the industry had been running on this illogical model for far too long everyone had gotten used to it; but zero MDR move by Government should work as a catalyst to drive this change and implement a more logical and sustainable business model, which is not designed to unreasonably favor the banks. Banks should not be allowed to only benefit from this entire ecosystem, while other partners share the entire burden of cost. I hope NPCI leads the way here with support from RBI and Finance Ministry to arrive at a agreeable solution that doesn’t ruin the payment facilitators and force them out of business. If that happens customer will be the biggest loser.
First thing I came to know in the morning today, after I managed to figure out it was actually morning and not afternoon, was that Facebook has acquired 9.99% stake in Jio; making them the largest minority stake holder in Jio. Afterwords I spent the entire day reading tweets and news reports talking about how this is the greatest thing to have happened to India’s digital ecosystem since the launch of Jio itself and how this can potentially be the digital moment India has been waiting for. Many talked about how this can help Facebook, while other spoke about the benefits Jio will make from this deal.
Few obvious things people pointed out, how Jio can sort out Whatsapp Pay’s troubles in going beyond pilot stage by pulling the weight of Mukesh Bhai (as some tried to suggest), while few meant that Jio’s massive cloud infrastructure can be taken advantage of. As this article from 8th Feb suggests that Whatsapp had already cleared the permission hurdle and was on its way towards a phase-wise launch of Whatsapp Pay in India. They would have moved with or without this deal; selecting Jio Cloud as storage partner will now have added advantage.
Then there were others who talked about how this could mean that we can now finally have India’s version of WeChat. Airtel has been trying to do that through Hike messenger for years with very little success. Even Jio has been pushing their own Jio Chat, which is an exact copy of WeChat since much before the launch of Jio, with very little success. The one mammoth disadvantage these earlier two attempts by these Telcos, was that they were competing against Whatsapp. Whatsapp has built their entire loyal user base based on the simplicity it offers and people were finding other alternatives too cluttered for the base function of messaging as compared to Whatsapp and didn’t move, despite these apps offering so many other features and functions.
One thing very few people deny that Indian consumer is extremely value conscious and doesn’t mind using multiple apps for same functions depending on, which is offering better value at that time. This is one of the reasons there is so much overlap between customer base of PayTM, PhonePe and GooglePay and these apps have so far found it difficult to build a loyal customer base. Now comes the question of adding additional functions to Whatsapp and make it into a super-app capitalizing on its loyal customer base. Well, you can try, however if you think it will see as much success as WeChat in China, you must be dreaming. India doesn’t want a WeChat. Stop pushing it down our throats.
Jio has their homegrown apps for almost everything the apps are being used for, be it payment (Jio Money), chat (Jio Chat), reading (Jio Mags), OTT (Jio Cinema), Music (Jio Saavn), Education (Embibe), E-commerce (AJIO); there are more. The idea is to tell you that they have an app for everything and they are all copies of the leading apps in that particular category barring a few exceptions which they have not built but acquired. Yet, none of these apps are market leaders in their respective categories despite the massive distribution advantage Jio telecom brings to the table. Very simple reason for this is, unlike telco, there is no friction when it comes to selecting the app you want to use for any of the other services. A customer finds these apps pre-installed and he/she tries to use them only to realize that there is a better alternative he/she was either already using or can switch to and promptly discards the Jio’s versions of apps.
The point I am trying to make here is that you can make an app; you can even push the app to consumer’s mobile phones, however you cannot force them to use that app for a prolonged period of time unless it offers better value than the next available alternative. This cannot be created by just copying the best available option in the app-store.
You can click here to read about my prediction on WhatsApp Pay.
Another extension of above argument it looking at it as a massive Fintech play encompassing other Financial services beyond payments. The opportunity clearly is there, and it will depend on execution. What I mean by this is that they need to think beyond copying Chinese models and build something inherently Indian. They clearly have the resources to do so. They also have a very robust distribution channel, very superior to what anyone else has. All they need is the right product and execution strategy and they can clearly become unstoppable.
Last point, which I believe is the real game-changer is combining Facebook’s online strengths with Jio’s offline presence. Together they can completely transform the O2O game. Jio has sellers and they are working on enhancing that network, combine it with the massive customer base that Facebook brings to the mix and it can build a highly efficient low cost O2O marketplace that any other player would find difficult to compete with. The only problem I see with this though is that till now Facebook has spent massive efforts on teaching the customer a behavior of constant scrolling, which is not suited for selling anything to the customer. In order to sell things customer needs to instinctively switch to browsing behavior. An Instagram could be a better place to sell stuff, however I have never used it so, it will be very difficult for me to predict how it would pan-out.
In the end there is one clear area I would suggest Facebook and Jio should together work on and that is figuring out how to do push sale without making the customer uncomfortable. Simply put, you should ask a customer to buy something, when you know he is looking for that thing. So far nobody has been able to crack this. (In my last post about Google Debit Card, I had briefly mentioned about Google potentially attempting to do something like that.) If they can crack this, it will make them the most preferred player to buy the Financial Services products from.
I am, like everyone else going to keep a close eye on the developments to see, which direction they are headed. I just wish they don’t try to convert WhatsApp into WeChat. I may have to then start looking for an alternative to WhatsApp, of which there are none at the moment. Is Telegram there yet?
Recently I came across news stories covering Google’s plan to launch a Debit Card. It all started with this TechCrunch article comparing this move with Apple Card launch. First of all, to me that is not a fair comparison to begin with because Credit and Debit card are two fundamentally different products at their core. If you keenly analyse the brand positioning of Apple vs Android, you would realize that these offerings are very much in-sync with that. This also reflects the markets where each of them are dominant players. While Apple’s dominance is in markets where credit is primary mode of transaction, however Android is leader in markets with savings account as primary source of funds for day today expenses. All those jokes about one needing credit to buy an iPhone are based on some truth.
As the TechCrunch article also pointed out, it is not Google’s first attempt at launching a card, they tried it when they launched Google Wallet in 2012. (I keenly followed that project, because I was in process of building my own wallet before Google announced their pilot. This is story for another time though.) While there were many aspects of Google Wallet that I found fascinating, I was skeptical about the debit card bit because of the entire on-boarding experience. I had seen journey of multiple debit card variants physical, virtual, mobile launched by HDFC Bank to make that prediction.
Now however the times have changed. First of all, now Google has experienced massive success in India under UPI product, which inherently accesses the funds from CASA accounts only. This must have given massive confidence boost to Google Pay team to make another attempt at launching an instrument accessing funds from CASA accounts. Since UPI is as of now an India specific phenomenon, Google is trying to rely on Debit Card variant one more time, now riding on the newfound confidence. What will be the on-boarding experience is not yet known, but if they can use the learning from earlier experience, they might be able to do it better. We managed to issue a very efficient mobile variant of debit card in 2006-07, as part of m-Chek project I did for HDFC Bank in partnership with then m-Chek and Airtel. It was for not so smart phones popular back then, now the world has moved much ahead in technology adoption.
Why Google would want to do this? My answer to this question is still the same as it was in 2013. Google’s primary source of revenue is ads. Currently Google can very efficiently track the efficiency of their ads right up to the point of click, however it is not so efficient when it comes to tracking the last mile of purchase. Being able to know the effectiveness of their ads right up to the point of purchase is equivalent of digital gold for Google, a company that has built the biggest empire on user data.
This data will be the key to unlocking an effective way for selling Financial Products like Insurance, Investment Products etc, which are essentially push products and no digital company has so far been able to crack the code for selling such push products (I was planning to go on this journey but then fate had other plans for me). If Google can crack this piece of the puzzle with access to this additional data, it will completely revolutionize the way products are sold digitally and I am not talking about Financial products only here.
In addition to above it would be very easy for Google to push transactions happening with-in their ecosystem on these cards. This is what the partnering banks gain, an easy distribution channel and almost certain activation, with massive transaction value flowing through these cards.
In summary, if done right, I believe it is going to be a game-changing move completely different from Apple Pay’s journey. This not only has the potential to impact Fintech world in a big way but also how entire digital commerce is done today.
PS: This also has the potential to make Google first truly effective neo-bank for retail customers, however I am not sure if Google would have those aspirations.
Few years back I had no idea about how investing works. In 2012, when I was first toying with the idea of becoming an entrepreneur I did not even have a clue how venture investing works. Then I got a chance to run an accelerator for early stage Fintech start-ups for some time with investment ticket size between 100k to 250K USD. I was closely involved with the entire process right from application, selection, investing to advising and helping them on various aspects of their business. While that entire stint was good fun, it also gave me a chance to interact with many start-ups from across the globe and opened my perspective towards appreciating and entrepreneur’s world and his/her perspective. If I was still doing early stage investing, how would I approach the current situation or should I use the word opportunity.
In my opinion this is the best time for early stage investors from deal making point of view for the simple fact that the nature is helping their selection process. The start-ups that are being built right now are primarily the ones where founders believe in their idea and execution ability beyond any reasonable doubt. Founders who were getting into business with the belief on their fund raising ability would be thinking of backing out now. That’s one big plus for any early stage investing.
Second big plus is that these start-ups are starting from rock bottom, if you and they believe that can make it in this situation, there is a huge possibility that things will only get better going ahead. If one can make it work given the current constraints and planning keeping the new world order and new learning in mind, it will be better for them to sail through than someone else who started earlier in earlier world order and now finding themselves back on the drawing board trying to figure out how to re-calibrate their products and processes. Some of the things which looked like a good thing to do 4 months back may feel like a huge inefficiency in the system. Very simple example would be if someone spent in an office lease may find out that it would be more efficient to work with only 30% office capacity.
Third point in favor of my argument is the ability to structure the deal in your favour with valuation expectations of founders readjusted to the new world order. There will be lesser haggling on valuation and you may be able to hold same equity for lesser investment. So even though your ability to raise fresh fund will be impacted to some extent due to global recession caused by this crisis, you should still be able to hold same kind of portfolio by finding a more favourable deal structure. If buying at low is true for public market, same should be true for private market to a large extent.
Fourth and the most important point is that the cost of labour has gone down significantly. Most organizations have reduced salaries of their staff. Typical salary-cut is in start-up world is in the range of 30-50% that means availability of good resources at lower cost has improved. If staff cost was a significant part of your burn, imagine it going down by almost 30% without you doing anything on your part. Since keeping the cost structure lean is one key criteria for any early stage start-up, current situation provides every early stage start-up a great opportunity to do so. With burn getting significantly lower with lower costs, a start-up maybe happy raising lesser than their original plan and try to run it in much more cost effective manner.
A seed stage investor works on the principle of taking higher risk in order to reap higher rewards that simply means the if they invest in twenty start-ups, the expect one of them to become a unicorn and three a semicorn so that even if all others fail their net return is significantly on the higher side. So their worry is not about making an investment that might fail, their bigger worry is missing out on one that might succeed. The opportunity presented by this downturn is that they may not be able to make twenty investments now but only ten however the possibility of those ten succeeding now would be much higher and return much more rewarding.
There may be an impact on the start-ups ability to generate revenue but for an early stage start-up immediate revenue is never a key criteria, by the time they reach a stage in their plan where they should start generating revenue markets would have recovered and customer’s ability to consume would have been restored. So to conclude, this is the best time for early stage investors to make deals and given a choice they should not miss this opportunity. Don’t wait it out. Get busy with Zoom calls scouting the deals. In that stage even due diligence can be performed remotely. Do the deals. All the best.
Follow up to earlier post clarifying RBI’s loan deferment memorandum, this post by @bhartiya_abhisummarizes the response of leading banks.
Presenting the summary and analysis of the response of 7 banks of India (SBI, ICICI, HDFC, PNB HSBC, Citibank and Standard Chartered) in response to RBI deferment option. While each bank has a separate policy these are the highlights according to me.
Out of 7 banks only 2 have allowed automatic deferment of loans
Credit card option has been given by very few banks and even they discourage using this option
SBI made a U turn for automatic deferment
ICICI has the most relaxed criteria for loan deferment
All the foreign banks have very strict criteria for availing this option
I have also provided the source for my analysis. For any confusion please refer the bank sources.
Bank response to RBI deferment option
As part of COVID-19 regulatory package, RBI had rolled out a notification: RBI/2019-20/186 dated March 27, 2020, to reduce the burden of debt servicing caused due to disruptions in business on account of the COVID 19 pandemic and to ensure continuity of business. Following this announcement banks have started rolling their individual policies. Since capturing the policy of each bank would be very difficult and lengthy article I have tried to capture these 7 prominent banks (4 Indian banks and 3 foreign banks).
The response of the banks is varied and assymetric but one thing is common. All the banks want to avoid delay in credit card payments. Another surprise in the list is the U turn taken by SBI which had initially promised to defer the loans automatically. Each of these banks have a special condition attached for some loan. So if you have a loan/credit card from these banks please read it. I have tried to cover the points to the best of my understanding but please refer to the links provided for each bank for further understanding.
I have covered the following banks and the default option for the loans is as follows. Default option means what would happen if you don’t take any action or don’t contact your bank.
The default option is that most of the term loans (list provided in the pdf above) will be deferred unless customers go for opt out of the moratorium. People can opt out by sending a sms – for these term loans. The number has not been provided in the guideline.
For Term loans
The Interest on all these loans will keep accruing and EMI will remain the same. This will result in increase of tenure.
For CC and overdraft facility all the interest accumulated will be payable on 1st June 2020.
There is no benefit for those who have paid their EMI in March
There is no extension of moratorium if currently going
There is no late fees for availing the moratorium
For Credit Cards
For credit card you have to opt in for moratorium
All unpaid amount added in Jun 2020 bill
For EMI on debit card people need to opt in to avail the moratorium option
For term loans there is an Opt in facility which means the instalments will continue if you do not contact the bank. If you don’t pay the instalment till 30th May then its assumed you want moratorium. To avail the option you have to call the bank numbers and inform them about wanting moratorium.
Separate call needs to be made for each facility. This means if you have multiple loans and you want the moratorium option for more than one loan then you need to call separately for each facility.
There is no credit for installment paid in March so all those who have paid in March can avail this facility for 2 months only.
If you want this option for credit card also then don’t pay and stop auto pay. Otherwise the banks will keep the option. The bank strongly urges its customer to pay whatever they can to avoid heavy interest.
SBI has actually changed its policy from the statements provided in media. It has changed from automatic deferment to opt in policy, so the bank seems to have second thoughts on its initial policy.
All term loan customers need to be apply for loan. The tenure can be extended by 3 months if availed for all 3 months.
The customers need to send email to bank to stop NACH. Refund of the March EMI is also possible by request.
The extension is only for term loans and not for credit cards.
The loan moratorium option needs to be opted in to avail the facility.
PNB has provided moratorium option for all Retail loans are typically home loans, personal loans, education loans, auto and any loans that have a fixed tenure. Which means that credit cards have been excluded by PNB also.
The option exists for Home Loans (excluding Smart Home Loans), Loans against property (excluding Smart Loan against Property) and Personal Loans for its Wealth and Personal Banking (WPB) customers.
Some products like smart home loan not covered – These are the home loans which has OD facility.
Credit cards are not covered under this option
One can only apply online for the moratorium.
They will vet the eligibility. The moratorium is not applicable for everyone. Basic conditions are as follows
There basic eligibility criteria for being eligible for moratorium under this scheme are:
i. Loans disbursed or balances generated post 1 March 2020 are not eligible.
ii. You should not be overdue on any instalments or payments due to HSBC India as of 29 March 2020.
iii. All details need to correctly and completely filled in the application form.
For the selected loan the tenure of the loan will increase and EMI will be constant.
The criteria looks the strongest of all the bank norms that I have analysed and ensures that a very few would be eligible for this option
There is no separate request required from the applicants. Standard Chartered Bank shall be deferring EMIs during the moratorium period falling between April 2020 and May 31, 2020, as a default, for all eligible customers. This is applicable for all loan accounts with no outstanding dues as ofMarch27,2020
Moratorium period is applicable to non-delinquent loan accounts and includes the following Term Loans: •Home Loans
•Loan against Property
•Business Instalment Loans
•Guarantee Instalment Loans
The moratorium conditions are as follows:
One needs to SMS if they do not want to avail the moratorium.
It is only applicable for April and May instalments
EMI will be same and tenure will be extended
If availed no prepayment or other payment allowed
One is be eligible to avail the benefit of deferred payment of EMI during the Moratorium Period only if there are no outstanding dues as of March27,2020.
Incase someone is not eligible to avail the benefit under the moratorium Period, then they are required to repay the EMI on time to avoid penal charges and a slippage in credit rating
Not applicable for pre EMI on under construction units
So no option has been given for credit card payments
RBI has recently announced deferment option to financial institutions for 3months to fight the challenges arising due to the pandemic (Covid 19). This announcement is a welcome step to fight the sudden financial uncertainties faced by retail borrowers. While many people will grab this opportunity due to financial problems it has also increased confusion amongst those who have not understood it well.
So I would try to explain the various aspects of the loan deferment announced alongwith an excel sheet where you can calculate the impact of using the deferment option
What is the option?
RBI has permitted all the financial institutions to allow a moratorium of three months on payment of instalments in respect of all retail term loans outstanding as on March 1, 2020. This means if you have taken a term loan from any lending institution, be it a regional rural bank, small finance bank and local area bank, a co-operative bank, all-India financial institutions, and NBFC (including a housing finance companies like HDFC), you can defer EMI payments for three months (March 20 to May 20).
Please understand that this is an option for the financial institutions and not a compulsory order. So your bank can refuse to defer your loans and demand regular payments for your loan.
What type of loan are covered (Is credit cards included)?
The announcement covers all the term loans like home loans, automobile loans, personal loans, farm loans, and crop loans. The announcement also includes other loans/revolving facility like credit card.
The loan deferment includes principal and interest payment for all the term loans and credit card outstanding.
Is it a loan waiver or loan deferment?
This is only a deferment option and not a waiver. In simple terms if you don’t pay your loan for 2 months your loan tenure will be extended by 2 months. You will have to pay the interest amount for the deferment period also along with the original payment schedule. Your loan EMI has not been waived off and only deferred if needed.
Which loans to defer(or not) and what will be the interest rate?
The interest rate on deferred payments will most probably be the same as your ongoing rate of the loan. It means that deferring a credit card payment will attract 36-42% interest rates while a housing loan will attract 8-10% interest rates.
So even though credit cards are also included in this option you should definitely not use it for regular payments of credit cards. A term loan on credit card carries 12%-18% interest hence even they should be avoided.
Housing loans are the best loans to be utilised in this announcement (if needed) as they are typically the biggest loans with low interest rates (<10%) and a long tenure. Any other loan should also be judged on similar parameters.
Will your loan EMI increase after deferment option?
Yes most likely. If you use the deferment option the interest amount accumulated on the deferred months will have to be adjusted. Which means you will have to pay more when your regular repayment starts. So either your accumulated interest will have to paid in one go or it will be distributed along the remaining tenure of the loan.
I have prepared a sheet to calculate the impact of using the deferment option. Please input your loan amount, tenure and interest rate to check the impact and your revised schedule.
Ex: If you have a loan of 3,00,000 at 12% interest and 18 months remaining the impact will be as follows.
Current schedule (to be input)
Paid in March but not in April and May
No payment from March to May
Loan outstanding on 1st March
Remaining tenure in months
Last EMI date
Total amount paid
Do you have to inform the banks?
Yes you have to. While some banks like SBI have automatically deferred the loans every bank will have its own policy. Its best to check with your bank/financial institutions and inform them in writing.
The bank may ask you the reason for deferment and deny the option to you. So take your documents or any other supporting evidence to show why you need deferment before meeting them.
What if I paid/not paid in March and what happens to my credit score?
Since the announcement came in the last week of March and applies retrospectively for all loans outstanding on 1st March 2020 many people would have paid the installment for March. If you have paid your installment for March then you need to discuss with your bank. They may be able to adjust this amount for future payments along-with deferment for April and May.
If you have defaulted on your March installment for some reason you should immediately contact your bank/lender. You can get your loan adjusted retrospectively for March 2020 and escape being reported to credit bureaus.
Your credit score and credit history will not be impacted if you choose this option but continuing regular payment may boost your credit score. So this option should be used only if you are facing huge uncertainty.
The loan deferment option is a good option for those who are facing huge financial uncertainty. For all those who can repay their loans comfortably should continue with their regular schedules.
PS: This post is curtsy my good friend Abhishek. You can follow him on twitter @bhartiya_abhi
Google Location is one of the most widely used service in the world and most of the smartphones have this service on by default for it is also being used by various other utility applications worldwide. We also know that google maintains the history unless a user specifically requests to delete that history. Google also knows your peer-group and the people you interact with in regular basis, for example if you happened to take an Ola cab, Google location logs will show you and the driver used the Google location service and the same time and you two journeyed together. If you happened to be in a public place meeting someone, there is a high probability google location service coupled with your contact history and call logs can establish who you were meeting.
Having established above let’s talk about some useful facts about coronavirus and its spread. 1. It’s a highly contagious virus, so it will be safe to assume everyone a carrier has come is contact with is at risk. 2. The symptoms can show themselves anywhere between 2-14 days from the day of infection, meaning in a carrier starts showing symptoms today it is possible that he/she has been a career from past 14 days. 3. Testing and health services are limited and in extreme short supply hence it is important to know where to focus the efforts. and 4. Tracing the carriers and quarantining them as fast as possible (before they even know it) is the key because any delay in doing so may mean anywhere between 1-25 additional carriers everyday assuming mild social distancing is being practiced and mobility is restricted because of lockdown.
Armed with above informed I propose following service to be designed, which may end up helping in saving the humanity in big way. (We can resume our privacy debates once humanity is safe and sound).
Create and additional service as part of Google location service where user or any other person having access to user’s phone marks the person carrier as soon as he/she is tested positive.
The moment this information hits the server, google maps will trace the footsteps of this user for last 14 days
Google servers will identify all other users in its systems that have been in the same location at the same time
Google will send a notification to all these users with the details of the nearest testing center requesting them to get them tested and observe extreme self quarantine till they are tested and confirmed negative
A copy of this notification will be sent to the nearest testing center, so that testing centers do not send away this person because he/she does not fit the criteria given to them (make this notification as one of the criteria for testing)
Google will also know if and when the person has visited the testing center and mark the user as sample given, when he/she visits the testing center and submits his/her sample
Google will also know if such person is breaking quarantine and will warn the person against doing so and will also alert nearby designated authority if such marked person decides to move away from his/her quarantine location along with a tracking
This tracking will help authorities apprehend the person as soon as possible
Users identified as such will not be allowed to turn off their location service till they are marked negative by the authorities
(We can even have an option to alert people co-living so that they also can take precautions and also help the person get through this situation)
Disclaimer: I do not have detailed knowledge of Google’s systems and internal functionality. This is a proposal created based on my knowledge of their services as a user. I am sure their capable engineers will be able to do a much better job when they get to designing something like this.