🔒 Understanding account proxies and aliases
Effortless P2P Transactions: UPI, ZELLE, BIZUM
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Summary
The article explores the innovative concept of account proxies, offering simplified identifiers like phone numbers and email addresses for financial transactions. It delves into the two implementation approaches: centralized, where a single entity manages the mapping of proxies to bank accounts, and distributed, where multiple entities maintain their own mapping systems. The piece further investigates examples like UPI (Unified Payments Interface) in India, Zelle in the US and Bizum in Spain that showcase the practicality and efficiency of these systems.
Welcome to another episode of Payment Fundamentals!. In today's digital age, where convenience and efficiency are paramount, payment systems have undergone significant evolution. Bank account proxies or aliases, such as phone numbers and email addresses, are revolutionizing the way we conduct financial transactions.
Account aliases serve as intermediaries between users and their bank accounts, simplifying the process of making payments and facilitating seamless transactions across various platforms. They act as virtual representations of a user's bank account, allowing them to make payments without directly exposing account information.
Instead of cumbersome account numbers, these proxies serve as user-friendly identifiers, simplifying payments and transfers. With the rise of digital banking and mobile payments, linking bank accounts to familiar contact details offers convenience and accessibility.
For instance, individuals can seamlessly send money using just a recipient's phone number or email address, eliminating the need to remember complex account information. This shift towards account proxies heralds a new era of effortless and secure financial interactions in the digital age.
To ensure the functionality of an alias, all participating banks need to share this information within a directory. This directory serves as a distinct infrastructure that maintains the link between the bank account identifier (e.g., IBAN) and the account alias (e.g., email, phone number, national ID). The exchange of this pair, consisting of the account identifier and alias, typically occurs during the customer's Know Your Customer (KYC) process or when the customer agrees to the terms and conditions of the product offering alias functionality. Once this information exchange takes place, the alias can be used during transaction initiation, being resolved beforehand for the final payment to be directed to the appropriate account number within the banking system.
Banks synchronize their account identifiers, such as IBAN and BIC, at specific intervals. Subsequently, they can resolve these proxies at a later stage to obtain the actual account identifier of the beneficiary.
The use of account proxies not only facilitates push payments but also plays a crucial role in pull mechanisms like request-to-pay, streamlining the payment process and enhancing convenience for users. By associating a proxy, such as a phone number or email, with a bank account, request-to-pay mechanisms simplify transaction initiation. For a refresher on how request-to-pay and proxies interact, we recommend reading the following article.
In the realm of payment infrastructure implementations, there exists a spectrum of approaches, with some systems opting for a centralized directory model, while others favor a more distributed architecture. The choice between these two models often hinges on the need for flexibility in design and the desire to leverage existing directories within the region. A centralized directory offers streamlined management and uniformity but may lack the adaptability required for certain use cases. Conversely, a distributed approach provides greater flexibility and resilience, allowing for tailored solutions that can integrate seamlessly with diverse existing systems and directories across the region.
In the distributed scenario of account proxy resolution, multiple directories collaborate to achieve the ultimate resolution of the proxy.
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