Banks and payment aggregators must deploy a payment switch to interconnect with centralized schemes for seamless interoperability. Payment aggregators also benefit from the flexibility to connect directly to the central platform, enabling faster time-to-market and more efficient collaboration between all players in the ecosystem.

For banks and aggregators, outsourcing the switch to technology service providers like NPST can alleviate infrastructure burdens. With a well-designed payment switch, banks and payment aggregators can ensure optimal fraud detection, transaction monitoring, and regulatory compliance, while also streamlining reconciliation and dispute management processes.

When assessing a payment switch, several attributes must be considered, beyond basic processing functionalities. These include:

As Internet banking processes higher transaction volumes, real-time fraud detection capabilities, built into the switch, provide an essential compliance and security layer for banks and payment aggregators to combat emerging threats. While major banks rely on robust Fraud Risk Management (FRM) systems, mid-sized and smaller payment aggregators face significant challenges due to limited expertise and resources. For these players, integrated fraud prevention mechanisms within payment platforms offer a scalable and cost-effective solution.

• Robust Protection: Ensure strong fraud defenses on both the issuer and acquirer sides.
• Improved Accuracy: Enhance fraud detection to minimize losses and false positives while controlling deployment costs.
• Advanced Algorithms: Implement machine learning models that go beyond rules-based systems to analyse large datasets, uncover implicit patterns, and assign risk scores based on factors like transaction amounts, merchant type, merchant behavior, customer behaviour, and geolocation.
• Seamless Updates: Enable real-time updates of fraud detection algorithms without causing system downtime.
• Performance Assurance: Maintain consistent throughput and low latency during peak traffic to meet stringent SLAs.
• Data Security: Ensure comprehensive protection for personally identifiable information (PII).

Compliance with frameworks like PA-DSS and PCI-DSS is so important—it helps protect sensitive payment information and keeps vulnerabilities in check. Beyond these standards, given the volume of Personally Identifiable Information (PII) involved in processes like customer registration and payments through Internet Banking Systems (IBS), banks and merchant-PAs must be compliant with Regulations like the Information Technology Act require explicit consent from customers before sharing their data, emphasizing the importance of transparency and respect for privacy.

An effective payment switch allows financial institutions to automate three-way reconciliation between the central scheme, core banking system, and payment records, significantly reducing administrative overhead. The level of automation may vary between technology providers. The switch should automatically compare transaction records from the central payment system and those from the issuing and acquiring institutions to identify discrepancies. This facilitates quicker dispute resolution and faster settlement of funds. Additionally, the process should calculate net-off totals and post them to the general ledger accounts, ensuring accurate financial management and streamlining the reconciliation process.

Advanced analytics capabilities allow stakeholders to monitor transaction trends and performance metrics. These insights must help banks refine fraud detection mechanisms, optimize service experience, and support informed decision-making for continuous improvement.