Payment Systems: Constant Change and Compliance

One of the major responsibilities of a bank is to enable payment on behalf of its clients. Banks are significantly investing in payment and payment-reconciliation platforms to offer a seamless customer experience. However, with the growing trend of digitization, the entire payment system has witnessed a shift from traditional approach to digital platforms. This increase in digitization has allowed banks to rapidly innovate to keep up with client and regulatory demands.

The structure of the payment systems in banks is multi-thread and multi-channel, where the payers transfer funds and values to the beneficiary through various methods. We can classify the payment systems in two ways, ‘large value payment system’ and ‘retail payment systems.’ The retail payment system, which summarizes the modern payment system, can be depicted as below:

The roadmap of payment system, how is payment system changing and evolving?

As technology is evolving, the traditional methods of payments like cash, cheque, and other paper-based payment are diminishing. Even if we have not eliminated the use of cash and paper-based payments, real-time payment is certainly redefining the payment systems in the modern times, changing the entire way of how payments were done in the past.

Let us take the Indian payment scenario where a large and geographically dispersed economy has a higher number of transactions made every single day. With this scenario, India’s payment system needs are highly demanding, where a significant number of B2B, G2C, P2P transactions, and paper-based payments become inefficient and expensive. Digital payments are the only way to improve the efficiency of transactions for an economy like India.

Today, India’s payment system is considered to be safe, efficient, secure, vast and are adequately regulated and supervised. The transactions and fund transfers occur through various channels and sources. This is only possible due to the high degree of digitization.

Today, along with cash transfer, cheque transactions, and direct payments, digital payments are used for utility payments, taxes, mobile recharge, paying mobile bills and more. Digital payments are increasing with the increase of payment channels. Smartphones have empowered digital payment options like e-Money and Unified Payment Interface.

The growth of the regulatory framework and innovation in the technology landscape within banks and e-commerce now allows fintech companies to compete for service delivery in market niches. In India, the digital payment options changed with the sudden growth of e-Money, UPI, Aadhaar Payments Bridge System (APBS), RuPay, Bharat Bill Payment System (BBPS), etc, adding greater accessibility and convenience to the end-users.

The roadmap of digital payment systems comes with startling discoveries of their capabilities. Moving beyond Electronic Clearing Services, Fund Transfer, RTGS, Internet Banking and Mobile Banking, the payment systems have further revolutionised into open banking sources and opportunities such as Payment Services Directives PSD2, open banking, SWIFT, and more.  With governments adopting electronic payment processes, huge efficiencies / ease of business is being achieved within G2C services. 

Since the volume of debit and credit usage at the PoS (Point of Sale) has increased by a CAGR of 40% from 880 million in 2012 to 4799 million transactions in 2017, we may take an example of technology embedded in debit and credit cards to understand how the payment system is evolving.

Following are the steps taken to improve the card-based payment systems:

  • In the need to automate the process, magstripe was added to the already embossed card
  • To reduce the fraudulent use of cards EMV chip was installed
  • To enhance the speed and convenience, contactless chips were added
  • The banks further needed to go beyond payments and virtualize or improve contactless payments by introducing NFC-enabled card

Maintaining the regulatory rules and protection policies of Payment System

With new technologies and innovations that is bringing fast changes in the electronic payment system in banking, financial institutions are gearing up to meet their end-user expectations, which also includes ensuring end-to-end security of their payment systems and platforms. Banks need to make sure that their payment systems are compliant with all the regulatory rules and protection principles. To enhance the safety, transparency, accessibility, and efficiency for their customers, banks are developing faster and offering improved payment services.

To facilitate faster payment processing, settlement, and real-time views of cash positions, B2B is using SWIFT ISO 20022 regulatory rules. This international Unified Payment Hub supports ISO 20022 and is a real-time, cross-border digital payment solution, which can help to track transactions anytime and anywhere.

A few of the payment systems are volatile because of huge transactions and sensitive information involved in the process. We may take systemically important payment systems (SIPS) as a perfect example of a complex transaction. It is a European large-value payment system, which is significant to ensure the financial stability of the country due to its transaction volume, market share and cross-border relevance. SIPS is subjected to regulation and monitoring by the European Central Bank.

Testing of Payment system and why is it necessary

The payment system architecture is broad and varied, where systems and applications are extremely complex. Organizations need the most robust testing mechanism to ensure that the systems are fully equipped to handle National and International transactions and remittance. Following are the types of testing which is essential for the payment applications and systems.

  • Functional Testing – Functional testing of the payment system provides a clear idea if the payment system is meeting the business requirements with its predefined functions.
  • Interface Testing – It is important in the payment system as it verifies if the accurate outcome is obtained based on the communication between two different systems.
  • Performance Testing – Performance testing is conducted to test the speed, response time, stability, reliability, scalability, and resource for the payment systems.
  • Network Security Testing – It is conducted to mitigate the security risks, meet the industry standards, and launch product ensuring the network security of the systems.

The testing of domestic and international payment systems is crucial for Quality Assurance of the entire payment architecture. There is a greater liability on the payment platform as a huge volume of transaction takes place on these platforms every day. The national and international banks or finance organizations must follow certain clearing protocols and must remain compliant with the regulation to ensure a smooth transfer or remittance from one account to another within the stipulated time. Testing of payment systems is imperative to facilitate these transactions without any technical glitches within the committed time.

Yethi’s role as a testing partner

Yethi is a niche QA service provider for banks and financial institutions across the world. With about 400+ domain specialist and extensive knowledge in banking/financial software, Yethi has partnered with 90+ clients across 22 countries by offering them outstanding testing solutions and services. From functional, interface, performance to security testing, Yethi specializes in conducting end-to-end testing of payment system to ensure smooth national and international fund transfer and transactions.

Yethi’s testing services cover various channels of payment systems such as Internet Banking, Mobile Banking, Branch and Agency Banking and various networks such as RTGS (Real Time Gross Settlement), IMPS (Immediate Payment Service), NEFT (National Electronic Funds Transfer), AEPS (Aadhaar Enabled Payments Systems), UPI (Unified Payments Interface), SWIFT, SEPA, Wallets, Card Payments, ATM/POS Transactions, and more.

Yethi’s proprietary codeless 5th generation test automation platform, Tenjin, is easy to integrate and deploy with the systems and platform and undertakes test execution using the application UI and API. Further, a test repository of more than half a million test cases comprising of simple and complex test scenarios helps in saving time, money, and resource strength by 40%.