You must be swiping your card whenever you shop or go out for dining. Although there is a growing trend of settling bills through card payments or e-transfers, the penetration of e-payment systems is still very low in India. People prefer to pay by cheque. As per RBI reports, this traditional mode of payment constitutes 82% of the total value of transactions even today. Cash payment is very popular in retail transactions although its contribution in high value transactions has reduced over time. Due to poor infrastructure and huge under- banked population, acceptance for electronic route for making payments is low among masses. Many people are reluctant to choose electronic route for the safety reasons. As technology is getting better, cases of online frauds are also becoming frequent. But soon this might change. National Payments Corporation of India (NPCI) has been mulling over providing insurance cover for online transactions. NPCI handles, consolidates and integrates the multiple systems of retail payments in India.

What will be covered?
NPCI may form an association with general insurance companies for covering domestic as well as international transactions which are done either by swiping a card or PIN-based transactions and e-commerce transactions that require two-step authentication. Besides covering compromised and disputed ATM transactions, it would also cover fraudulent transactions resulting in financial loss to non-bank operators. Per card insurance cover has been set Rs 50,000 for now.

Selection of the insurer...
NPCI would shortlist insurers by calling for bids. General insurance companies satisfying the selection criteria would be allowed to participate in the bidding process. Eligibility parameters for insurers are:
 

• Insurance companies must have 3 years of track record in general insurance operations as on March 31, 2013
• Minimum gross direct premium collection of Rs 250 crore in financial year 2011-12 and 2012-13
• Claim settlement ratio of 75% and above for past 3 financial years
• The company shouldn't have been blacklisted by NPCI or any government body in the past
   

PersonalFN is of the view that initiative taken by NPCI to make e-payments safer would be beneficial to banks as well as their customers. There is a sizable customer base of banks which can potentially use online platforms to transact if assured about safety factor. PersonalFN believes that usage of e-rout for payments would be crucial to achieving objective of financial inclusion. Even though providing insurance won't eliminate risk as it will merely transfer the risk from the customers to insurance companies; this could be the first step in encouraging masses to use e-payment routes. From time to time RBI has expressed its concern about high value of currency in circulation which is about 12% of GDP. Per person non-cash transactions are only 6 per year as per RBI data.

PersonalFN also believes that NPCI would have to make sure that genuine victims of online frauds are compensated fully. Internationally, the experience of claim settlement has not been very encouraging as less than half get the full compensation. Moreover, since onus of proving that utmost care was taken while transacting is on the customer, effectiveness of insurance may be limited. There is a possibility that large number of claims may be rejected on these grounds. True, one may use zero-liability cards but given the little awareness about such features among masses, chances of people opting for them on their own are remote. Maintaining high level of claim settlement would hold the key to success of this initiative taken by NPCI.

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