As an Indian exporter, navigating the complexities of international transactions and compliance can feel like solving a complex puzzle. Today, we'll explore a crucial piece of that puzzle: FIRC

FIRC full form is Foreign Inward Remittance Certificate. It is a document issued by banks as proof of receiving international payments. Over the years, regulations around FIRC have changed significantly, creating confusion and mystery around this important document. Let's clear the air and decode the what, who, and why of FIRC.

FIRC or Foreign Inward Remittance Certificate serves as a proof of foreign money transfer for exporters in India. Until 2016, <a href="https://rbidocs.rbi.org.in/rdocs/FEMAMASTER/PDFs/1061.PDF">AD (Authorised Dealer) Category I Banks</a> were authorised to issue FIRCs to exporters for receiving payments from foreign sources. This document was essential for exporters to obtain after each cross-border payment. It served not only as proof of payment receipt but also as a crucial document for claiming export-related incentives, such as tax exemptions on foreign currency payments received in India.

As we've covered, the full form of FIRC is Foreign Inward Remittance Certificate and for a long time it served as proof of export income from abroad. However, with changing regulations, the function of FIRC has also changed significantly. Let's take a look:

FIRA is often still referred to by its old name, FIRC. While both documents serve the same purpose, FIRC is technically only issued for returns on&nbsp;Foreign Direct Investment (FDI )or Foreign Institutional Investment (FII). For all other export collections, FIRA/BIRC is what you need.

For clarity, we'll use the term FIRC moving forward, but it refers to FIRA throughout.

Anyone receiving foreign payments needs FIRC.&nbsp; Beyond goods and service exporters engaging in international trade, many individuals and entities may receive international payments without realising it.&nbsp;

Overall, the following typically require a FIRC:

Beyond compliance, here’s why FIRC is crucial for exporters:

FIRCs are issued by AD Category I banks. You can contact your bank to get your FIRC after receiving your foreign payment. <a href="https://www.skydo.com/blog/how-to-get-firc-certificate-online">Alternatively, you can also use platforms like Skydo to get your FIRC instantly after every payment.&nbsp;</a>

Who Needs FIRC and Why It’s Important for Exporters?

FIRC (Foreign Inward Remittance Certificate) is essential for anyone receiving foreign payments, including:

Exporters, in particular, rely on FIRC for two key reasons:

FIRC is issued by Authorized Dealer (AD) Category I banks, and businesses can obtain it directly from their bank. However, it is usually a cumbersome process requiring multiple follow-ups and most banks charge around INR 500 to issue each FIRC.&nbsp;In contrast, platforms like Skydo offer a fast, hassle-free solution, providing an instant FIRC for free after every foreign payment—no manual requests, no extra costs.

This is a sample FIRC document. All crucial remittance details have been masked for security purposes. Now let’s break the content of a FIRC down: 

Receiving your export payment directly through your bank can make obtaining an FIRC a lengthy process. You need to submit a request to the bank, and the bank typically takes 7-15 days to provide the FIRC. You may also need to follow up multiple times, and banks often charge at least INR 400 to issue the FIRC, depending on the institution.

<a href="https://www.skydo.com/blog/how-to-get-firc-certificate-online">Getting a FIRC</a> might sound like a hassle, but with Skydo, it's a breeze. Our fully automated payment system along with built-in partnerships with banks, ensures effortless compliance with RBI guidelines, without needing any manual intervention.

When you receive an export payment through Skydo, we automatically generate the required FIRC for you at no extra cost. Just log into our user-friendly dashboard, and you'll find your FIRC ready to download, complete with all the details you need. 

In conversations around FIRC, there are a few more terms that get frequently mentioned, one of them being eFIRC. So what exactly is <a href="https://www.skydo.com/blog/efirc-firc-brc-essentials-differences">eFIRC?</a>

What is the difference between eBRC and FIRC?

Generally speaking, e-BRC applies mostly to goods and software exporters (under <a href="https://stpi.in/en/home?no_follow=true/">STPI</a>). If you are one of them, you can use this simple decision tree to understand which documents you will need:

Exporting goods and services is considered Zero-Rated Supply, meaning it is subject to 0% GST. However, to claim a GST refund for the input tax credit, exporters must provide the required documents including FIRC. These documents authenticate that the business is claiming a refund because it exported services and couldn't offset its input tax credit as it would in normal domestic business. Without FIRC, claiming a GST refund may not be possible

As we surge in cross-border transactions, ensuring compliance and safeguarding against illicit activities has become a pressing concern. However, at Skydo, we believe your focus should be on advancing your business, not on grappling with compliance challenges.

With Skydo, enjoy seamless international payments, delivered promptly and without any hidden fees. But that's just the beginning! Every time you receive a cross-border payment, an auto-generated FIRC is readily available for you to download, relieving you of compliance burdens so you can devote your energy to what truly matters: driving your business forward.

FIRC full form is Foreign Inward Remittance Certificate. Learn what FIRC is, its importance for exporters and freelancers, and how to obtain it easily

FIRC: Full form, meaning and RBI guidelines

Dive into the world of FIRC. Explore the full form, importance, and process of obtaining FIRC for your international transactions

Foreign Inward Remittance Certificate (FIRC): Full form, meaning and RBI guidelines

Prashanth

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Prashanth Kumar

A McKinsey <a href="https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/purpose-not-platitudes-a-personal-challenge-for-top-executives">survey</a> states that employee engagement increases when a company’s purpose is aligned with its employees’ goals and they know how their actions contribute to the company’s purpose.&nbsp;

So, how do you align your employees with your business mission? Or let us rephrase - how do you align organizational goals with your team members' individual goals?

This blog explains various strategies for:

1. Improved team motivation and engagement

Teams develop a greater sense of purpose and are more driven to perform their best when aligning with the organization’s mission and goals. A <a href="https://www.gallup.com/workplace/236927/employee-engagement-drives-growth.aspx">study</a> shows that higher employee engagement increases business productivity by 18%.

When everyone understands the common objectives, they can collaborate more seamlessly, leading to improved synergy and innovation within the organization.

3. Clearer decision-making and problem-solving

With a shared understanding of the company's goals and mission, decision-makers can prioritize initiatives and tackle challenges to advance the overarching mission, leading to more transparent decision-making and problem-solving processes. It also increases <a href="https://www.gallup.com/workplace/236927/employee-engagement-drives-growth.aspx">business profitability</a> by 23%

Establish the core principles for the company's mission

"People don't buy what you do; they buy why you do it," says Simon Sinek in <a href="https://www.goodreads.com/book/show/7108725-start-with-why">Start with Why</a>. The team requires a purpose and motivation to align with a vision. They have to believe in the business mission to follow it.&nbsp;

Thus, it is necessary to establish core principles for a company's mission that inspire your team and serve as the driving force for its existence. It provides crucial answers to questions like why the organization exists, its mission, and how it intends to achieve its core business principles.

<a href="https://www.mckinsey.com/~/media/mckinsey/business%20functions/people%20and%20organizational%20performance/our%20insights/the%20state%20of%20organizations%202023/the-state-of-organizations-2023.pdf">Decathlon</a> is a leading sports goods retailer. The CEO, Barbara Martin Coppola, explains the business mission is "to democratize sport so everyone can experience its wonders on their own terms." How does their team align with it? One reason is that they attract employees who are passionate about sports. However, the main reason is the entrepreneurship and empowerment culture within the company.&nbsp;

Its minimal hierarchical structure inspires people at all levels to perform better. This alignment fosters a cohesive and values-centric work environment and empowers the team to collectively drive their efforts toward shared objectives.

Some examples of business core principles to achieve a company's mission are:

Here is how you can set business core principles for your organization:

It takes meticulous preparation to match your team's mission with your business mission. Here are a few <a href="https://www.skydo.com/blog/implementing-effective-communication-to-boost-productivity?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">channels for communication</a>, pragmatic ideas, and efficient tactics for guiding your staff toward your business core principles.&nbsp;

A <a href="https://thoughtexchange.com/blog/5-ways-to-achieve-team-alignment-in-your-organization/">study</a> suggests that frontline workers are less likely to understand how they contribute to the business mission than the leaders. Team alignment requires cascading the mission from strategy to operations. It is also called the trickle-down effect.&nbsp;

Break down high-level organizational objectives into specific ones at lower levels (to ensure everyone understands how their efforts contribute). Here is an example of cascading goal setting. You can use a similar template to add goals for your organization.

You have now set clear goals for the team and conveyed them well. However, your team may not be able to achieve those goals properly. Why? Lack of productivity due to ineffective communication. 

<a href="https://www.grammarly.com/business/Grammarly_The_State_Of_Business_Communication.pdf">Grammarly's The State of Business Communication Report</a> reveals that poor team communication increases costs and reduces productivity. In fact, teams lose 7.47 hours per week on average due to ineffective communication.

The key is establishing a robust communication channel that instills team trust, improves collaboration, and increases productivity. Here is how you can improve internal business communication:&nbsp;

Learn more: <a href="https://www.skydo.com/blog/effective-time-management-techniques-for-business-owners">Effective Time Management Techniques for Business Owners</a>

One of the best ways to align your team with the organizational objectives is to set strategic goals for each employee that contribute to the business mission by using the objectives and key results (OKRs) model.

Here is an example of how to use the OKR framework for your team.

An increasing number of employees seek purpose, autonomy, and work flexibility beyond monetary benefits.

Here is how leaders can help their team members feel empowered at work.

<a href="https://www.michaelpage.co.in/talent-trends/the-great-x">82%</a> employees feel happier and more motivated when recognized. Performance recognition also improves employee retention. Therefore, prompt acknowledgment can increase team alignment. The following are some of the most effective methods of setting up an employee recognition and reward system:&nbsp;

Learn more: <a href="https://www.skydo.com/blog/recruitment-strategies-for-top-talent-startups?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">8 Recruitment Strategies for Top Talent for Startups</a>

Team alignment is the synchronized pursuit of a common goal among all employees, teams, and leadership within an organization to achieve success.

Alignment with the company's mission translates into heightened productivity and output as teams operate with greater efficiency and cohesion. This, in turn, contributes to improved employee morale, as team members derive a sense of purpose and pride from understanding how their contributions impact the company's success.&nbsp;

If you require a starting point or guidance on how to initiate this process effectively, consider consulting the following books:

Ans:&nbsp; Team alignment can be measured through regular communication, goal tracking, and feedback mechanisms. Assessing shared objectives, values, and collaborative efforts ensures cohesion.

Q2. How do you set team vision and mission?

Ans: Establishing a team vision and mission involves collaborative goal-setting, defining core values, and aligning objectives with organizational goals. Regularly communicate and reinforce the vision to ensure team cohesion and commitment.

Ans: &nbsp;Unifying a leadership team requires open communication, fostering trust, and aligning on common goals. Encourage transparency, active listening, and collective decision-making to strengthen team unity.

Top 6 Strategies for Team Alignment with Business Mission

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ACH is one of the most popular electronic payment methods in the US. In 2023, it processed an astonishing <a href="https://www.nacha.org/news/ach-network-records-strong-growth-2023-same-day-ach-surpasses-3-billion-payments-inception">31.5 billion</a> electronic transactions. While ACH is popular for domestic payments, it can also be used for international transfers. If you’re an Indian exporter or a freelancer with US-based clients, you can receive payments from them via ACH.

But what is ACH exactly and is it cheaper than wire transfer to receive payments? Join us as we answer that and a lot more in this detailed blog post

ACH's full form is Automated Clearing House. It's also called Automated Clearing House Network because it can process a comprehensive list of electronic financial transactions like bill payments and ACH direct deposits in the US. The<a href="https://www.nacha.org/"> National Automated Clearing House Association (NACHA)</a> based out of Reston, Virginia is the governing body of ACH and oversees the electronic fund transfer system.

ACH payments have a wide purpose beyond bank-to-bank transfers. Let's look at a few of the types of ACH payments in this section:

With the ACH network, you can pay bills online and automate recurring expenses like utility bills, rent, and subscriptions. This way your bills get paid on time without worrying about when is the next bill due for payment. For example, you can authorize the electric utility company to deduct the bill amount each month from your bank account.

<a href="https://www.skydo.com/blog/everything-about-ach-payments">ACH payments</a> and payroll processing work great together. It's a huge relief for businesses because employees get their salaries credited to their bank accounts on time. For example, a company running its payroll every two weeks can directly deposit the due amount to the employee's account on payday.

The IRS uses ACH to credit tax refunds to the taxpayer's bank account directly. It's a quicker and more secure alternative to processing tax refunds using paper checks. In the same way, you can also use ACH to pay taxes electronically and stay compliant with the tax laws.

Loan repayments are another popular example of ACH payments. You can set up automatic withdrawals for loan repayment instalments so that the mortgage lender gets paid on time and you avoid late payment penalty charges.

Deposits Into An Individual Retirement Account (IRA)

If you're planning to contribute to your Individual Retirement Account (IRA) consistently, then ACH transactions are a great choice. Using this option, you can contribute funds from your account to your IRA account and build the corpus over time.

Using ACH for daily business transactions like paying vendors or receiving money from customers is also common. For example, if a business gets a $2,000 invoice from their vendor, they can authorize an ACH transfer so that the funds are settled quickly. There is no need to manage checks or cash to make the payment.

There are two broad types of ACH transfers: ACH direct deposit and ACH direct payments.

In this type of ACH transfer, the funds are electronically deposited into the recipient's bank account. This is most commonly used by a business and government entity to transfer money into consumer's accounts.

Here's a list of the most popular ways of using ACH Direct Deposits:

Paychecks: Businesses use direct deposit to process payroll payments of employees. Salary is credited to their employees' bank accounts according to the payday

Employer-Reimbursed Expenses: Apart from salary, businesses also use direct deposit to reimburse their employees if they have incurred expenses for work-related activities

Government Benefits: Government benefits like disability payments or unemployment compensation are directly credited using this transfer method

Tax Refunds: If a taxpayer is liable for tax refund, they have the option to receive the amount directly to their checking or savings account using ACH direct deposit

Annuity Payments: Annuity payments are made to investors at a set interval consistently. You can ask the insurance or the asset management company to use ACH to transfer the annuity to your account directly

Interest Payments: Similar to insurance companies, banks also make interest payments using the ACH direct deposit route.

Individuals, businesses or other entities use ACH Direct Payments to make payments from their bank account directly. This is a popular technique for making bill payments and loan repayments.

Here's the expanded list of the most popular ways of using ACH Direct Payments:

Bill Payments: With the user having the freedom to set automatic payment instructions, ACH direct payment is the most popular way to manage recurring expenses like utility or credit card bills

Vendor Payments: Businesses use ACH to pay their vendors and suppliers. The money is directly cut from their account and credited to the receiving bank account without manual work

Charitable Donations: Many charitable organizations give donors an option to set ACH direct payments to make money transfers consistently.

Online Purchases: If an online retailer accepts ACH direct payment, then you can complete the transaction by paying the money directly from your bank account.

There are two ways to make payments using ACH: one-time payments and ACH mandates. Let's understand each of them individually:

One-time payments are single transactions initiated when you receive the notification for bill payment. For example, when you receive a credit card statement, you decide how much to pay and then authorize the amount to be deducted from your bank account.

ACH mandate is useful when the billing amount is fixed and recurring. As you know how much amount will be auto-debited from your bank account, you can enter into a recurring payment arrangement with the billing company. In this payment arrangement, you authorize the company in advance to deduct the amount from your bank on a specific date. This is useful for paying regular expenses like car loans, mortgages or subscription services.

What Are The Charges For ACH Payments and Transfers?

Typically, you don't have to pay any charges for ACH payments and transfers. However, some service providers can charge fees for initial set-up. If you're receiving money in India through ACH bank debit, platforms like<a href="https://www.payoneer.com/en-in/about/pricing/"> Payoneer</a> can charge a 1% fee on the amount. Other payment platforms like Skydo, allow you to receive money in India through ACH bank debit without any additional cost.

ACH return charges are levied when the funds return to the originator's account for reasons like not having enough balance, incorrect account information or non-existent accounts. The charges for debit returns differ from one bank to another but typically range between $2 to $5. However, a bank may charge even more in case of repeated returns.

What Are The Advantages Of ACH Transfers?

ACH transfers come with a long list of advantages, but here are the top three that you must know:

Using ACH direct deposits and direct payments are mostly free for individuals. Even for businesses, ACH is a cost-effective technique for managing payments and receiving money from others. According to the NACHA, ACH costs businesses between<a href="https://www.nacha.org/news/ach-costs-are-fraction-check-costs-businesses-afp-survey-shows"> $0.26 to $0.50</a> which is a lot less than issuing checks which costs between $2.01 to $4.

In ACH transfers there are no physical transfers of money or checks involved, so there is less risk for theft or loss. Besides there are ample security measures implemented like following strong encryption to protect sensitive information. There are other protocols like Multi-Factor Authentication (MFA) which adds an extra layer of security to protect your data from unauthorized access from bad actors.

Traditional ACH transfers take one or two business days to process. Banks and other financial institutions have also started offering the<a href="https://www.nacha.org/same-day-ach"> Same Day ACH</a> for making bill payments or receiving money up to $1 million on the same day. The swiftness of the ACH infrastructure is mostly beneficial for businesses as they can make urgent payments or have better control over managing funds.

What Are The Disadvantages Of ACH Transfers?

ACH transfers also come with a list of disadvantages, here are the top three:

Banks and other financial institutions usually impose transaction limits on ACH transfers. These limits can vary as daily, weekly or monthly depending on the institution. If your ACH transfers hit that limit, you are not allowed to make further transactions within the specific time frame

Penalty for frequent transfers and breach of limit

In addition to transaction limits, the bank or financial institution may impose other thresholds. If a user, breaches these limits frequently, the bank might charge penalties or even stop the account from making further ACH transactions. This could be a matter of hindrance for companies that have to make many frequent online payments.

It Can Be Slow Due to Bank Processing Time and Batch Payments

ACH payments are mostly processed in a batch. It means several ACH transactions are batched together in a particular time frame and settled individually. If you are initiating an ACH transfer after the cut-off time, it might be settled on the next business day.

Here's a quick comparison of ACH and Wire transfer:

Receive Payments From The US In India With Skydo

Working with US clients? International payments don’t have to be a hassle. Skydo makes it simple, cost-effective, and seamless. Set up a virtual account in just 5 minutes and start receiving payments from the US, Europe, Singapore, and Australia—no complex banking required.

With live Forex rates and no hidden fees, Skydo ensures you get the most value for your money. Plus, compliance is effortless with instant FIRA downloads after every transaction, keeping you RBI-compliant without the headache. Need help? Your dedicated representative is just a call away.

Say goodbye to high fees, delays, and red tape. With Skydo, you can focus on growing your business while we take care of the payments!

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<a href="https://www.bbva.com/en/everything-need-know-psd2/">It all began in 2007 </a>when the European Union launched a directive that majorly streamlined cross-border transactions within the European Economic Area (EEA). The directive called the Payment Service Providers Directive (PSD), aimed to develop a single payment market in the EU and improve the current competition and transactional efficiency.&nbsp;

Before the Payment Service Providers Directive (PSD) was introduced in 2007, conducting cross-border transactions within the European Economic Area (EEA) was a complex and costly process.

You had to deal with multiple banks, various currencies, and high transaction fees, making it challenging to expand your business to international customers. The lack of a unified payment system created inefficiencies, making it difficult to compete with larger businesses.

However, with the implementation of the PSD, the process became much simpler. Now, you can use a single payment service provider to manage transactions in multiple EEA countries, reducing transaction costs and currency exchange hassles. This streamlined approach has opened up new opportunities for your small business to expand across borders, compete more effectively, and serve customers across the EEA with ease.

Although the directive was a huge success, the EU felt that there was room for more innovation.The EU amended PSD in 2009 to create the PSD1 framework, which was again amended in <a href="https://www.ecb.europa.eu/paym/intro/mip-online/2018/html/1803_revisedpsd.en.html">2013 to its current form of PSD2. </a>The current form, PSD2, is widely considered to have ushered in a new era of consumer-centric financial services in the EEA.&nbsp;

You decide to use a budgeting app that provides valuable insights into your spending habits. Using the PSD2 framework, you can now securely link this app to your bank account. This means the app can access your account data with your consent and provide you with more accurate financial advice and budgeting tools.

Consumers now enjoy increased choice, security, transparency, and convenience in their financial transactions.

Yes, PSD2 must sound intriguing to you, but a proper understanding of what PSD2 is is vital in the current scenario when most countries are looking to create a framework similar to PSD2 for international payments.

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The PSD2 (Payment Services Directive 2) is a directive released and managed by the European Union to regulate international <a href="https://www.skydo.com/blog/eefc-account-vs-payment-platforms?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">payment services</a> within the European Economic Area (EEA). The European Union introduced PSD2 to ensure healthy competition, innovation and secure payment process in the European payment industry. PSD2 builds upon the original Payment Services Directive (PSD) and was adopted in 2015, becoming effective on January 13, 2018.

Through the PSD2, the European Union has introduced the Strong Customer Authentication (SCA). SCA completes the transactions by including at least two of the three levels of authorisation: something they know, something they own, and something they are. The transactions require a password or a PIN, a mobile number for OTP and additional security in the form of facial recognition or fingerprint.&nbsp;

PSD2, along with increasing transactional security, has resulted in increased healthy competition by opening up payment services to fintech startups and prompted traditional banks to enhance their offerings. As a result, consumers now enjoy a more user-friendly and cost-effective financial experience.

With a broader range of payment services, consumers can <a href="https://www.skydo.com/blog/top-paypal-india-alternatives-for-international-payment">choose a payment service provider</a> with higher customer protection measures and lower transaction fees, further establishing the need for innovation to sustain.

How is PSD2 relevant to Stop Hidden Fees?

PSD2's relevance to stop hidden fees lies in its potential to address opaque pricing practices in international payments. Set to be incorporated into UK law, these regulations prohibit non-transparent pricing methods. Currently, banks and brokers often conceal costs within unfavourable exchange rates, catching customers off guard with undisclosed fees.&nbsp;

PSD2 emphasises the need for consumers to know the 'real costs and charges' associated with cross-border money transfers, echoing the initial Payment Services Directive (PSD). The crucial aspect is whether the government will uphold this commitment, considering past instances of non-compliance. PSD2 presents an opportunity to combat hidden fees and enhance transparency in financial transactions.

Open banking is a broader concept that refers to the practice of banks and other financial institutions opening up access to their customer’s financial data, with their consent, to third-party providers (TPPs) through secure APIs (Application Programming Interfaces). This data sharing allows TPPs to develop new financial products and services.&nbsp;

The concept of open banking started in 2007, with the EU introducing the PSD (Payment Service Providers Directive) to ensure a single payment market in the EU. However, in 2013, the EU proposed an amendment, giving rise to the PSD2. The amended directive introduced the concept of TPPs to give a much-needed push to the opening banking spectrum.&nbsp;

PSD2 serves as the legal framework within the EU that enables open banking practices. It sets the regulatory foundation for secure financial data sharing between banks and third-party providers. Under the PSD2 regulation, the banks are required to provide customers' account information (after their consent) to third-party service providers, allowing customers to:&nbsp;

With PSD2’s push to open banking, the practice allows customers to access a broader spectrum of financial services, including payment initiation, account aggregation and personal financial management. Now, the customer can choose from a host of third-party providers (TPPs) and applications to execute international payments effectively.&nbsp;

Several fintech companies have leveraged the regulatory framework provided by PSD2 to develop efficient and cost-effective <a href="https://www.skydo.com/blog/real-time-tracking-of-international-payments">international payment services.</a> These companies have utilised access to bank APIs and customer account data to create innovative solutions. Some examples include <a href="https://www.skydo.com/blog/top_5_wise_alternatives_for_international_payment">Wise</a>, <a href="https://www.skydo.com/blog/top-paypal-india-alternatives-for-international-payment">PayPal</a>, <a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">Skydo</a>, TransferGo etc.&nbsp;

Here is the impact of PSD2 on international payments: 

The main motive behind amending PSD and PSD1 to create PSD2 or even introducing such a directive has always been targeted towards the end consumers making <a href="https://www.skydo.com/blog/cut-international-transaction-costs?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">international transactions</a>. With PSD2 and open banking, they have experienced several benefits in terms of competition, transparency, cost and security.&nbsp;

Global Implications and Future Trends&nbsp;

The introduction of PSD2 by the EU has been a motivating step for global economies as they look to revolutionise their payment industry. Since the EU introduced PSD2, financial experts, policymakers and regulators in other countries are working towards creating a similar framework to promote competition, innovation, and security in financial services. Currently, countries outside the EEA are exploring open banking and how they can leverage it to create a more interconnected global financial ecosystem.&nbsp;

PSD2 has also raised the bar for other countries to ensure better cybersecurity standards and ensure quick processing speed for international payments. Fintech companies that have leveraged PSD2 in EEA are expanding their business to offer other countries better payment solutions with lower transactional fees.&nbsp;

Countries such as Australia, Canada, and Singapore have already introduced or are considering open banking regulations. This chain reaction may continue and expand to countries like India, launching an official directive similar to PSD2.&nbsp;

The increased adaptation of advanced open technologies such as blockchain and digital currencies may play a vital role in the future expansion of PSD2 and open banking. Such technologies, along with international banking partnerships, will play a prominent role in streamlining international payments and cross-border transactions, further transforming the financial landscape.

International payments will only rise in volume as more individuals and businesses establish their global presence. The introduction of PSD2 by the EU and the resulting push to open banking and other customer-protecting measures have positively impacted cross-border transactions and have called for the launching of similar directives in other countries.PSD2’s influence is seen in the proliferation of open banking initiatives, enhanced cybersecurity measures, and improved consumer experiences worldwide. As the financial industry continues to evolve, the principles and trends set in motion by PSD2 will shape the future of banking and payment services on a global scale.

Ans: The PSD2 directive, or Payment Services Directive 2, is a European Union regulation designed to enhance and regulate electronic payment services. It aims to promote innovation, competition, and security in the financial industry by allowing third-party access to banking data through open banking APIs.

Ans: PSD2 in open banking refers to integrating Payment Services Directive 2 into the open banking framework. It mandates banks to provide secure access to customer account information to third-party providers, fostering competition and innovation in the financial sector.

Q3. What is PSD2 regulation and what is the impact?

Ans: PSD2 regulation is a set of rules governing payment services within the European Union. Its impact includes increased security measures, open banking initiatives, and enhanced competition as third-party providers gain access to customer data, fostering innovation in the financial sector.

Q4. What is the difference between open banking and PSD2?

Ans: Open banking is a broader concept, while PSD2 is a specific regulation within the European Union. PSD2 mandates open banking practices, requiring banks to share customer data securely with third-party providers. Open banking, in a global context, encompasses various initiatives that promote similar data-sharing practices for innovation and competition.

Q5. According to the PSD2 mandate, what is the maximum number of days to refund the disputed amount?

Ans: The PSD2 mandate stipulates that in case of a disputed transaction, the maximum number of days for a refund is 15 business days from the day the payment service provider receives the complaint.

Q6. How does PSD2 and open banking affect the financial industry?

Ans: PSD2 and open banking positively impact the financial industry by fostering innovation, competition, and improved security. These regulations encourage the development of new financial services and products, driven by collaboration between traditional banks and third-party providers, ultimately benefiting consumers with more choices and enhanced user experiences.

Ans: PSD2 came into effect on January 13, 2018, within the European Union. However, individual countries may have slightly different timelines for implementing specific aspects of the directive.

Ans: Yes, PSD2 is a regulation specific to the European Union. It aims to standardise and enhance payment services within EU member states.

Ans: PSD2 has a transformative impact on banking by promoting competition, innovation, and security. Banks are required to open up their customer data to third-party providers, fostering the development of new services and ensuring enhanced security measures for electronic payments.

Ans: PSD2 applies to all European Union member states. Therefore, the PSD2 countries include those within the EU, as the regulation is designed to create a standardised framework for electronic payment services across the entire union.

PSD2 and its Impact on International Payments

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As an Indian importer or international trader, you may have occasionally spotted the mysterious purpose code "1501" on your bank statement. Purpose code 1501 primarily deals with refunds and rebates associated with imports. In this blog post, we will discuss this purpose of code, explain its importance and look at a few common scenarios where code P1501 is used.

Before we dive into the details of purpose code 1501, here's a brief snapshot of Purpose Code 1501:

With the Reserve Bank of India (RBI) releasing its <a href="https://kpmg.com/us/en/taxnewsflash/news/2025/04/india-revised-draft-export-import-regulations.html">revised draft </a>of the 'Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2025' on April 4, it’s crucial for businesses to stay informed about these changes to ensure ongoing compliance and avoid surprises down the line."

Purpose Code 1501 in India specifically denotes transactions related to refunds or rebates received on account of imports. This code signifies that you've received money back from foreign entities associated with goods or services previously imported into India.&nbsp;For example, imagine you run a business in India that imports electronic components from China, assembles them locally, and sells the final product. If one of the components you imported turns out to be faulty and you file a complaint, the supplier may issue a refund for the defective part. This refund would need to be categorized under Purpose Code P1501.

Why is Understanding Purpose Code 1501 Important?

Note that the purpose code 1501 is used specifically for inward remittances (receiving refunds) related to imports. For outward remittance, i.e for sending refund abroad, purpose code S1501 is used.

Claiming Import Duty Refund Using Purpose Code 1501

Imagine you're an importer in India and you've just received a shipment of goods from overseas. Let's say you paid some import duty on these items. Now, for some reason, maybe a few items were damaged, or you were overcharged, you're due a refund on that duty. Here's a simplified look at how that refund might come back to you and where Purpose Code P1501 plays a role:

So, in simple terms, if you get an import duty refund that comes from a company or entity outside of India, your bank will use Purpose Code P1501 to categorize this money coming into your account. It's like a special tag that helps everyone understand the reason for the transaction.

How to Select the Right Purpose Code for Your Transaction?

Choosing the correct purpose code is crucial to ensure smooth and compliant transactions, especially when dealing with international payments. If you're receiving funds from abroad related to imports, such as refunds, rebates, or adjustments, Purpose Code 1501 should be used.

Before finalizing any transaction, carefully review the nature of the payment to confirm it accurately reflects the purpose of the funds. For instance, if the payment is not related to an import-related refund or rebate (e.g., a personal remittance from abroad), a different purpose code would be applicable.

To avoid discrepancies or delays, ensure you have all the necessary documentation to support the use of Purpose Code 1501. This may include:

If you're uncertain about the appropriate purpose code for your transaction, consult your bank or a financial expert. Using the wrong code can lead to delays in processing, scrutiny from regulatory authorities, and even potential penalties.

By carefully selecting the correct purpose code, you can ensure smooth and compliant transactions while maintaining accurate financial records.

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Most new exporters find the trade paperwork overwhelming. First, the volume and second, the lack of experience, lead them into a spiral of confusion.

If you're experiencing a similar situation, we might have the right blog to start cutting through this confusion. Among the various documents, the proforma invoice is one of the most frequently used by exporters worldwide. Is it the same as a formal invoice? Not really. It plays a different role.&nbsp;

We suggest reading this comprehensive guide to find out everything about proforma invoices. It breaks down all the details, from their basic definition and purpose to practical formats and examples. 

A proforma invoice is a preliminary bill of sale that provides a detailed estimate of costs before the sale is confirmed. It defines the key transaction details upfront so that the buyer and seller understand the proposed terms before the transaction is initiated. This helps to streamline the sales process and avoid going back and forth.

A proforma invoice typically includes detailed information like item descriptions, prices, shipping weights, and transport charges. It’s important to remember that it is only a provisional document and must be followed up with a commercial invoice to request payment from the buyer.&nbsp;

Here’s a scenario to help you understand the practical application of a proforma invoice. Imagine a textile exporter in India receiving a bulk order of 1,000 meters of silk fabric. The exporter is new and eager to close the deal but is unsure about the exact shipping cost and&nbsp;customs duties. So, they share a proforma invoice that includes the fabric cost, estimated shipping to the U.S., potential customs duties, and other handling fees.

By providing this, the exporter gives the buyer a clear picture of the total cost. The buyer can use this information to negotiate with the exporter and make a more informed decision. They can also use it to arrange import permits or financing.