- How does an ATM transaction in India get through?
- Who pulls the strings behind our complex ATM network?
It is common knowledge that card networks are the orchestrators behind card payments, then who’s behind the ATM operations?
Well, in India, it is the invisible yet all-powerful National Financial Switch, NFS in short.
What is the National Financial Switch?
Back in 1996, the Institute for Development and Research in Banking Technology (IDRBT), established by the RBI launched the National Financial Switch. The aim was to bring up a supportive platform for ATM network growth and development. Then, the ownership of the NFS platform was transferred to the National Payments Corporation of India on authorization by the RBI in December 2009.
NFS was created to ensure the interoperability of ATMs present across the country while making it economical for the participating member banks and ATM switch providers (who function as a connector between the bank and NFS platform).
Primarily, NFS facilitates ATM transactions on all kinds of ATM machines like;
- Cash Deposit Machine
- Cash Recyclers
- Micro- ATMs
- Independent ATM service providers
- ATMs providing card-less cash withdrawal
- The latest addition of UPI-based cash withdrawal
Apart from this, NFS also works in close ties with card networks like Visa, MasterCard, JCB, Discover, and others which allows the cardholders to use ATM services connected to the NFS network. It operates on a full and sub-membership basis allowing banks of all sizes to participate in its network.
Primary functions of National Financial Switch:
- The must-have transactions of cash withdrawal, balance enquiry, pin change, and mini statement. This feature is available on all kinds of ATM machines and is open to all bank customers irrespective of their issuing bank. However, micro-ATMs only support cash withdrawal and balance enquiry features.
- Cardless cash withdrawal: It is mostly applicable with issuing bank ATMs, and it requires customers to raise a request in the mobile banking application and use an OTP authentication to withdraw the funds. Furthermore, this feature comes with a withdrawal limit just like your regular debit cards.
- UPI-based cash withdrawal: This service enables customers to use UPI-enabled mobile applications for cardless cash withdrawals. When the customer selects ‘UPI Cash Withdrawal’ at the ATM, they enter the withdrawal amount, which generates a QR code on the screen.
Scanning this code with their UPI-enabled mobile app and authorizing the transaction with a UPI PIN allows customers to access cash from the ATM. The benefits include eliminating the need to carry physical cards or remember ATM PINs, as customers can access multiple accounts through a linked UPI app.
- Cash deposit: This service allows customers to deposit cash into either their own accounts or third-party accounts through the NFS networked Cash Deposit Machines/Cash Recyclers of other banks. It offers benefits to both banks and customers by optimizing cash handling costs for banks and providing customers, both individual and corporate, with the convenience of using any bank’s CDM/Cash Recycler for deposits.
- Mobile Banking Registration (MBR) — Enables cardholders to register for mobile banking if their mobile number is already updated.
- Card-to-Card Fund Transfer (C2C) — Permits cardholders to transfer funds from their account to any other bank account through NFS network ATMs.
- Cheque Book Request (CBR) — Empowers cardholders to request a Cheque Book through NFS network ATMs.
- Statement Request (SR) — Allows cardholders to request a Statement of Account through NFS network ATMs.
- Aadhar Number Seeding (ANS) — Allows cardholders to link their Aadhaar number to their bank account.
How does National Financial Switch work?
Like card networks, NFS is the one who routes transactional information between banks when an ATM is used. It operates as a central platform for fund withdrawals, deposits, and other services.
Scenario: A customer of ABC Bank using XYZ bank ATM for cash withdrawal
- The customer will do the usual process at the XYZ bank ATM where they will insert their EMV card into the card reader slot and then enter the amount they wish to withdraw.
- Then punch in the pin to complete the transaction
- In the backend, the card details read by the XYZ bank ATM machine will be transmitted via its ATM switch provider to NFS who in turn will pass on the same to the customer’s ABC bank for their identification, fund availability confirmation, and authentication that include pin validation and balance limit checks etc.
- If all checks are good, the ABC bank will give its approval to NFS via their ATM switch provider and NFS will relay the same to the XYZ bank.
- The customer will then get the funds without a hitch from the XYZ bank ATM.
In case of a wrong pin, the transaction will be declined, and the process has to be repeated by the customer.
And just like card networks, NFS also handles the settlement of ATM transactions. In fact, NFS has around 4 settlement cycles.
What are the other benefits of NFS?
While NFS has made ATM networking a breeze, it just did not stop there, it has much more benefits in the area of:
Risk: The Fraud Risk Management (FRM) solution is provided for real-time transaction monitoring within the NFS network, and is capable of generating alerts or declining transactions.
Operational Efficiency: NFS has consistently achieved exceptional application and network uptime, exceeding 99.50%, contributing to an improved customer experience.
But, the question remains, how does NFS handle a dispute/chargeback request? Well, that’s a story for another day.