by Srikanth

The Bharat Bill Payments System (BBPS) is an integrated payment system offers interoperable and accessible bill payment service to customers through a network of agents, enabling multiple payment modes, and providing instant confirmation of payment.

In May 2013, a committee under RBI Exec director G Padmanabhan studied Giro based payments across the world and feasibility of introducing Giro based payment system in India. While conventionally Giro payments were paper-based and used cheques, world was moving towards electronic GIRO and the committee in its report proposed IBPS (Indian Bill Payment System).

In March 2014, Giro advisory group, headed by IIT-B professor Umesh Bellur submitted the GAG Report which defined the contours of rechristened Bharat Bill Payment System, and suggested the formation of a central standards body as non-profit organisation called BBPS Central Unit (BBPSCU), either within NPCI or a similar new entity, with multiple for-profit BBPS Operating Unit (BBPSOU) registered under it to provide commercial operations and make competition.

As per the RBI FAQ on BBPS, all entities involved in bill payment processing are now to be licensed under BBPS either as BBPSOU / as an agent under a licensed BBPSOU, by satisfying minimum capital requirements and adherence to BBPSCU defined technical standards and processes before May 2017, then extended it to December 2017 or must exit the business, essentially putting the industry under licensing regime.

The front story and upsides

1. Consumer convenience

If you have paid electricity/water / local broadband provider’s bill through first-party websites (if they have one), chances are you have seen issues with the interfaces, user experiences, and payment failures. Personally, post demonetization, I have been paying Tamil Nadu electricity board’s bill and the experience is similar to IRCTC of yesteryears. Aside from user experience (as minimal as payment confirmations), choice of payment modes, dispute resolution on failed payments have all been problems which consumers have encountered without much recourse, mostly because some of these biller sites or bill payment streams are usually the only (digital) way to pay the bills.

2. Bill processing, aggregation — Interoperability / level playing field for startups

Electronic bill presentment and payment (EBPP) industry or online bill payment processing industry has been around for more than a decade. The bill processor makes commercial agreements with billers (utility, telecom/internet providers), provide multiple channels, both online (web, internet banking, mobile)/ offline (ECS, Kiosk, retail outlets) with multiple payment methods (Cash, cheque, cards, online payment, e-Wallets). These intermediaries (bill aggregators / online payment integrators for billers) were brought under RBI regulations in 2009 through a direction issued by Payments and Settlement Systems Act 2007.

The challenge for these intermediaries has been in adding more billers because billers who have already integrated with existing aggregators have no additional incentive to provide access to startups. It became increasingly difficult for newer startups to get into agreements (as recent as 2017, PhonePe was blocked by Airtel) with all billers and instead could only become referrers/agents of existing aggregators.

BBPS offers a fresh start to these processors and the necessity of having agreements is now not a precondition to offer service to customer and billers can’t block non-friendly / rival service provider from providing the service citing commercial considerations.

3. Better collections at low cost for billers

Traditionally, utility billers, particularly state-owned electricity PSUs / DISCOMs, have faced challenges in collecting bills. Aside from “cost of cash” and the cost of collections, enforcement of penalties for non-payment of bills might sometime cost even more than the bill itself. Billing companies have over the years adopted various means in solving this cost of collection problem, ranging from ECS which some customers find unfriendly, leading to its slow death, online bill payment through payment gateway integration, exposing biller data to bill aggregators/collectors who in turn sold bill payment facility as a service through agent network, both offline (eSeva centres / retail recharge outlets) and online (e Wallets / apps / net banking). While the online bill payments across channels kept growing, but traditional cash-based bill collection had large dues/cost of collection.

In some cases like UP DISCOMs, Black swan event Demonetization provided a one-time relief, but the problem largely exists even today leading to accumulation of dues. BBPS through its multiple competing BBPSOUs (bank / non bank payment entities) and its agent networks, aims to increase efficiency of collections at low cost through more avenues.

The backstory and other effects

1. Public Credit Registry

RBI wants public credit registry — Multiple economists (Viral AcharyaWatal Committee Report R6) in the govt are of the view that a public credit registry, a central database of loans would help instill a better credit culture in the country. PCR is not only a database of loans, but would also maintain profiles, scores of prospective credit seekers which would be built through various data sources including utility bill payments.

While the current credit rating agencies have data of mostly everyone in the formal economy, data is hard to come by for those in informal economy, which constitutes a majority in India. The govt has also set up a high-level task force for PCR.

2. Flow based lending

Giving credit based on scoring of transaction data is the essence of flow based lending. But that can be possible only for people who do digital payments / leave a digital trail. In the absence of real infrastructure, consumer trust, high cost of digital payments, cash would still rule. So the next option is to generate data where-ever possible, here comes bill payments. Even when the payments are in cash, they will be linked to individual using identifiers (this is also a reason for, ubiquitous linking is being pushed) and scores can be built.

Credit scores are usually maintained at an individual level. An active recurring-use ID, like the UID, can help in continuous scoring, profiling and tracking of the individual which could give a semblance of low-risk of the credit as the person can be tracked anytime. This is the reason why UID is being pushed as ubiquitous ID, so that fleeing after obtaining credit is minimised. It is an altogether different thing if the semblance of ‘low-risk’ translates into low-interest loans or lenders will maximise the profit.

But even after 100% Aadhaar coverage, some will still be outside data generation activity (or data poor) as the behaviour of performing financial transactions can be limited to one/few within a large family. The common expenses of the household consumed by the entire family will be distributed and in other cases grouping the entire household data would be difficult for smaller players who are fragmented across payment channels.

As we move into a less-job and gig economy, 3 years of salary statements would be hard to come by for many who seek credit, and moving into a scoring mechanism based on recurring spending would be a better indicator of creditworthiness. So making that electricity, water and DTH bill payments will also enable scoring households, measuring their discipline alongside their spending capability. Aside from credit, there are also other household level financial services like medical insurance, child savings, education loans for which tracking, scoring, profiling at a household level is far more effective than an individual level. Soon other categories of bill payments like school fees, insurance premiums, municipal taxes will get added in BBPS, offering convenience to consumers, more business to providers, increase collection for billers while making the household data-rich, at-least when it comes to spending, as opposed to larger, 360 degree data richness aspirations of SRDH/Servam projects.

3. Agent network, national scaling of eSeva

Beyond launching the digital infra, an important aspect of BBPS is that it would rely on the agent network for collections. The expectation is multiple BBPSOUs will focus on growing the last mile agent network which will give consumers more touch points to pay bills and provide sustainable economic incentives for agents and provide self-employment opportunities. CSC is one BBPSOU licensee, already operates touch points through its network and would be expected to grow its network in villages to provide digital services through its village-level entrepreneurship program. While initially convenience fee isn’t charged in BBPS, as the agent network expands, BBPS is designed to accommodate a convenience fee to ensure sustainability of platform and ecosystem participants.

4. Centralization is the new mantra

In the name of interoperability and standardization, we are being taken to a data centralization regime, where consent doesn’t matter. State/agencies have somehow got used to a situation where the right to collect data, directly or indirectly through platforms like BBPS is implicitly given. The scope of power abuse increases immensely with each entity collecting more data and interlinking across each other. In the absence of a data protection bill, infrastructure (legal, technical) to protect data, lack of discussion of FAT-ML (fairness, accountability, and transparency in the machine learning) in Indian context, we are stepping into a territory where there are significant cybersecurity, privacy risks and cost of these could far exceed the benefits this data regime might. An honest multi-stakeholder discussion is need of the hour before adopting data-first platforms.

The use of data for credit is seen as the greatest reason to justify the increase in the centralization of data. India in the past has seen suicides related to credit, be it the farmer suicides, micro-finance suicides. As I was writing this article, a family set themselves ablaze in front of the Collectorate for failing to take action against harassment related to informal lending. Notwithstanding to the fact that centralized data collection programs violate the right to privacy, even after SC declaring it as a fundamental right, my only hope and prayer would be to that the lending industry does not harass/kill any more people.

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This article first appeared on 50p’s blog. This has been re-published with the permission of the author. 50p by HasGeek focuses on conversations surrounding technology, policy and regulations in the Indian digital payments ecosystem. The third edition of conference is scheduled on Feb 8,9 in Bangalore.