The Reserve Bank of India has defined a vision for digital payments from 2019 to 2021, to “empower every Indian with access to a bouquet of e-payment options that is safe, secure, convenient, quick and affordable.” To this end, it says it intends to follow an approach that enhances customer experience, empowers payment systems operators and infrastructure, puts in forward looking regulation, and establishes a risk-focused supervision system.
The RBI has identified the following 12 specific outcomes:
1. Reduce paper-based clearing as a percentage of retail payments: it is expected that the volume of cheque-based payments would be less than 2% of retail electronic transactions by 2021.
2. Accelerated growth in individual retail electronic payment systems: UPI is expected to grow, on an average annualised basis, over 100%, and NEFT at 40%, till December 2021. The number of digital transactions is expected to be 8,707 crore in December 2021.
3. Digital payment transaction turnover vis-à-vis GDP (at market prices-current price) is expected to increase to 10.37 in 2019, 12.29 in 2020 and 14.80 in 2021.
4. Debit card transactions at Point of Sale to increase to 35%, and “continued growth in PPI transactions”.
5. Debit card usage at PoS to be at least 44% of total debit card transactions (at PoS + ATM). In value terms it is 15.2 per cent in 2018-19 (5.2 per cent in 2014-15) which is expected to be 22% by end 2021.
6. Card payments/acceptance:
6.1: Increased deployment of card acceptance infrastructure across the country including at smaller centres with a substantial portion of the infrastructure taking care of processing contactless card payments. It is expected to have 5 million active PoS by end 2021. The total card acceptance infrastructure will be upscaled to six times present levels by end 2021.
6.2: digital PoS (QR code) is also expected to increase substantially
6.3: Shift Cash on Delivery (CoD) transactions to digital modes for e-commerce.
7. Reduction in cash in circulation as a percentage of GDP is a goal, but no specific target is being considered by the RBI
8. 50% increase in mobile based payment transactions is expected
9. Reduction in pricing of electronic payment systems by at least 100 basis points, and a shift from transaction-value-percentage rate to per transaction rate, irrespective of the value of a transaction.
10. Enhanced security and customer centricity, in terms of:
10.1: Decrease in Technical Declines reported across various payment systems by 10% year-on-year.
10.2: Reduction in Business Declines reported across various payment systems by 5% year-on-year.
10.3: Improvement in Turn Around Time (TAT) for resolution of customer complaints by Payments System Operators.
11. Fraud to Sales (Fraud value / Sales value) x 10000] count for payment systems is expected to be less than 10 bps for most of the payment systems.
12. Enhanced healthy competition in the payments space and establishment of new Payments System Operators
36 initiatives over 36 months
For achieving these outcomes, it has identified the following 36 initiatives to be executed over the next 36 months:
1. Affordable, accessible and inclusive services, for action from RBI, NPCI, Payments System Operators:
- The RBI will continue with minimal intervention in the pricing of charges to customers for digital payments.
- Service providers will be required to bring about transparency in pricing.
- Pricing basis should be reasonable, and pass benefits of cost reduction of handling cash, to the customer. “The approach to pricing should be towards recovery of marginal costs and to migrate to a low margin-high volume regime.
- RBI will look to shift the ecosystem from transaction value-based pricing slabs to a fixed minimum transaction-based pricing. Elsewhere, the RBI says that:
“Payment System Operators (PSOs) need to consider cost of accessing and managing transactions and accordingly price their services. The aim is towards progressive reduction in ‘per-transaction’ cost to customers keeping in view the marginal cost advantage with increase in the number of transactions. The need to move towards marginal cost of pricing based on volume of transactions handled needs no over-emphasis.
2. Turn-around time for resolution of customer complaints, for action from RBI, NPCI, Payments System Operators:
- Turn-around time for customer complaints and requisite chargebacks should be reasonable.
- RBI will push for a recourse to technology-driven dispute redressal mechanisms that are rule-based, transparent, customer-friendly and involve minimum (or no) manual intervention.
3. Centralised 24×7 Helpline, for action from RBI, NPCI, Payments System Operators:
- A payment industry self regulatory organisation (SRO) can facilitate the setting up of a general centralised helpline for addressing customer queries in respect of various digital payment products, security aspects, recourse mechanism, etc.
4. Awareness creation, for action from RBI, NPCI, Payments System Operators:
- An industry level initiative needs to be taken for building awareness through generic advertisements and systematically planned customer orientation programmes.
- Creation of customer awareness for basic cyber-security hygiene.
- Bankers and operators of the payments systems would have to ensure awareness at their end for strictly following defined secure operational processes.
- Creation of a Universal Icon / Symbol Set for basic use cases / operations in the area of retail electronic payments will also be explored.
5. Customer awareness surveys, for action taken by RBI:
- RBI will conduct surveys to gauge awareness and usage of various payment services, including digital payment systems, to help with policy formulation.
6. Internal ombudsman for Payment System Operators, for action from RBI, NPCI, Payments System Operators:
- There is a need to formalise an internal ombudsman in the payments system operators so that there is an avenue for swift and cost-effective complaint redressal mechanism within the organisation.
7. Review of corridors and charges for inbound cross-border remittances, for action by RBI:
- In order to infuse fair competition in cross-border remittances and bring in transparency in costs, RBI will examine the role that payment services providers (PSPs) can play to ensure friction free remittances at lower cost.
8. Self-regulatory organisation, for action from RBI, NPCI, Payments System Operators:
- The RBI says that there is a need for self-regulatory governance framework on important aspects like security, customer protection, pricing, etc., covering the entire gamut of digital PSOs, including retail products of National Payments Corporation of India (NPCI).
- The Self Regulatory Organisation will serve as a two-way communication channel between the players and the regulator / supervisor. The SRO will of course work towards establishing minimum benchmarks, standards and help discipline rogue behaviour.
9. Creating an environment for innovation through collaboration, for action by RBI:
- To encourage competition in existing payment systems, a review would be undertaken to consider authorisation of new players including one / few pan-India Umbrella Organisation/s. A framework, transparently delineating minimum entry requirements for any PSO, would also be made public.
- Need for existing authorised PSOs to essentially have physical presence in India for operating payment systems would also be explored.
- Increased use of technology in all spheres of the payment system ecospace will be actively encouraged and appreciated.
- A review of existing policy would be undertaken to encourage / facilitate healthy competition and level playing field among banks and non-banks.
10. Feature phone based payment services, for action by Payment Systems Operators:
- There is a need to innovate payment services for feature phones to provide the necessary thrust towards enhanced adoption of digital payments by various strata of society.
11. Offline payment solutions, for action by Payment Systems Operators::
- Though mobile internet speed has risen, connectivity issues remain unresolved in large areas. Therefore, providing an option of off-line payments through mobile devices for furthering the adoption of digital payments.
12. USSD based payment services, for action by NPCI:
- The available USSD based services require additional push through review of customer cost and enhanced usage through participation. The payment service providers may add features to scale up the security of the transactions, irrespective of the device security level / environment.
13. National settlement services, for action by RBI and Card Operators:
- The Reserve Bank shall examine the feasibility of having a single national settlement account for all authorised card networks. At present banks are required to have different settlement accounts for settling card transactions with different card networks.
14. Availability of Retail Services: Reserve Bank would examine
- The need to consider uninterrupted and round-the-clock availability of various payment systems; including the need to extend availability of NEFT beyond banking hours and adding more features to NEFT (faster settlements, staggered payments); It will also consider extending the timing of customer transactions in RTGS.
- Gradual enhancement of limits, including differential day-night, holiday limits for transactions, subject to risk management and liquidity management; etc.
15. Global outreach of payment systems, for action by RBI and NPCI:
- RBI will actively participate in discussions in international standard-setting bodies, and take a leadership role towards regional co-operation in payment systems. The objective is to enhance global outreach of India’s payment systems, including remittance services.
16. Widen scope, use and reach of domestic cards, for action by NPCI:
- RBI will focus on enhancing the scope, coverage and usage of domestic cards, including the RuPay card scheme.
17. Interoperability of payment systems, for action by RBI and Payments System Operators:
- Retail payment systems will be encouraged to be interoperable. The role of standardisation and the use of universally accepted standards will also be enhanced.
18. Acceptance infrastructure: The infrastructure will be upscaled to at least six times of the present levels in the next three years.
18.1 Acquirers: Explore the option of permitting acquiring PoS infrastructure by all regulated entities. Increase in acquirers, like Regional Rural Banks and Non-Banking Financial Companies, to cover a large section of establishments.
18.2 Innovation-based new devices: Innovation towards low-cost acceptance devices will be encouraged
18.3 Acceptance Development Fund (ADF): Creation of an ADF to subsidise acquirers for deploying PoS acceptance infrastructure in tier-3 to tier-6 centres.
18.4 Bharat QR (BQR): Enhanced usage of signed and encrypted BQR as proactive preventive measure for secure payments
19. Cheque truncation system, for action by RBI and NPCI:
- Enhance the security and efficiency of the present Cheque Truncation System mechanism, including bringing in uniformity and harmony in processes across the three cheque processing grids, apart from steps towards increased coverage and a single settlement.
- Coverage will be increased across more locations including examining improvement in processes / features and discontinuing recourse to Paper To Follow (P2F) across all State Governments.
20. Trade Receivables Discounting System (TREDS), for action by RBI:
- MSMEs face constraints in obtaining adequate finance given their inability to readily convert their trade receivables into liquid funds. Three TReDS platforms are operational. Guidelines would be reviewed, looking into enabling re-discounting, considering some participation of non-MSMEs, expanding financier categories, increasing the number of platforms, on boarding more buyers, etc.
21. Geo tagging of payment system touch points, for action by RBI, NPCI, Payments system operators:
- Reserve Bank is examining a framework to capture the location and business details of commercial bank branches, ATMs and BCs. It is envisaged to extend a similar framework to capture and maintain information about PoS terminals and other payment system touch points as well.
22. Regulatory Sandbox, for action by RBI:
- A framework for a regulatory sandbox for payment systems would be designed to provide a controlled environment, with certain regulatory exemptions, to allow experimentation of new payment system products by traditional and non-traditional players.
23. System capacity and scalability, for action by RBI, NPCI, Payments system operators:
- The current approach to authorisation for payment systems is liberal with no prescriptions and / or assessment responsibilities on the payment service providers in terms of performance metrics like uptime, technical declines, capacity, etc. for systems operated by them. A framework for an ongoing assessment of the performance of retail payment systems would be designed. Need for prescribing explicit exit criteria of payment systems and payment system operators based on a transparent point-of-arrival metrics will also be explored.
24. Contactless Payments and tokenisation, for action by RBI:
- Reserve Bank has authorised certain players to offer mobile payment solutions driven by secure tokenisation standards. RBI would consider a broad-based framework for other payment experiences, keeping in mind customer liability issues and security of authentication mechanisms.
25. Review of membership of centralised payment systems, for action by RBI:
- The Reserve Bank continuously receives requests and feedback for payment infrastructure access neutrality between banks and non-banks. RBI has already permitted participation of non-banks in certain payment infrastructure; RBI will initiate discussion to develop a framework for settlement risk management with increased participation of non-banks.
26. Increasing usage of Legal Entity Identifier system for large value cross border payments, for action by RBI and LEIL:
- Legal Entity Identifier (LEI) system envisages identification of unique parties to financial transactions across the globe. There is a case for exploring the option of using LEI to identify the payment service providers, their agents and distributors, in respect of cross border services, particularly for large value payments, including expanding the implementation across all the identified segments.
27. Encourage adoption of new technoligies, including blockchain, for action by RBI, NPCI, CCIL and Payment System Operators:
- Distributed Ledger Technology (DLT) adoption can enhance the operations of payment systems by improving the quality of data and providing additional information for payment transaction, which help automated reconciliation and reversal with high degree of precision. Adoption of DLT will be considered to facilitate industry wide adoption for areas which can benefit from this technology.
28. E-Mandates / Standing Instructions, for action by RBI:
- RBI will consider implementation of e-mandates / standing instructions for retail payment systems, subject to customer protection and adequate safeguards like authenticating payment instrument registration, mandating transaction limits, segments, etc.
29. Security of Mobile Payments, for action by RBI:
- The Reserve Bank would issue specific standards which the banks providing mobile payment services shall comply with, mandate minimum requirements, highlight best practices and initiate discussion on risks emerging from innovative payment channels through emerging technologies including Artificial Intelligence, Internet of Things devices, wearables, etc.
30. Regulation of Payment Gateway service providers and payment aggregators, for action by RBI:
- The current guidelines on payment gateway operations (monitored through banks) are indirect and address only a few specific aspects of their functioning. The Reserve Bank has initiated discussion on examining the need for separate guidelines for payments related activities of these entities which will be taken forward during the vision period.
31. Inter regulatory and intra regulatory co-ordination:
- The Reserve Bank shall engage with the other sectoral regulators – SEBI, IRDA, TRAI, etc., to remove frictions in regulation and ease system operator / customer comfort. The endeavour will also to have a co-ordinated approach to regulation and supervision within Reserve Bank across the different related departments – Department of Banking Regulation, Department of Banking Supervision, Department of Non-Banking Regulation, Department of Co-operative Banking Regulation, Financial Markets Regulation Department, Financial Markets Operations Department, Foreign Exchange Department, Customer Education and Protection Department, Department of Information Technology, Department of Economic and Policy Research, Department of Statistics and Information Management, Department of Government and Bank Accounts, etc. Similar engagements with the subsidiaries of Reserve Bank – Institute for Development and Research in Banking Technology (IDRBT), Reserve Bank Information Technology Pvt. Ltd. (ReBIT), etc., will be pursued.
32. Oversight for maintaining integrity of payment systems, for action by RBI and Payment System Operators:
- Interconnected systems are as safe as their weakest link. There is, therefore, a need for both security against possible cyber-attacks and resilience in the eventuality of such attacks. All payment systems should display explicit levels of safety. It is necessary that systems not only meet the requirements of safety but are also subjected to periodic safety audits.
- There is a prescription of self-assessment by the PSOs, which are also required to subject their systems to IS audit through CERT-In empaneled auditors.
- For transparency and clarity, there is a need for disclosed supervisory framework for all the stake holders to better understand their roles and responsibilities.
- The need for publishing oversight reports in public domain by the Reserve Bank will be considered.
- The feasibility of oversight of cross border entities with the help of information sharing MOUs with overseas regulators will also be examined.
- The existing penalty framework for payment system operators will be reviewed and modified.
- In consultation with the CSITE Cell of the Reserve Bank, the need to subject payment system operators to the same rigour for cyber-security preparedness as the other entities in the financial sector will be looked into.
33. Third party risk management, and system-wide security, for action by RBI, NPCI and Payment System Operators:
- The need for a separate regulatory framework for outsourcing arrangements by non-bank payment service providers would be examined given the current trend of outsourcing arrangements and the need for security control and clarity of roles and responsibilities of the regulated entities. Such a framework would consider the risks associated with data access, confidentiality, integrity, sovereignty, recoverability, regulatory compliance and auditing.
- Such a framework would also consider overall security of the digital payments ecosystem by covering the entire payment transaction chain, including the need for establishing end point security.
- Need to customise PCI (Payment Card Industry) standards to better suit / reflect Indian situations will also be explored.
34. Framework for collecting data on frauds in payment systems, for action by RBI, NPCI and Payment System Operators:
- The Reserve Bank will promote use of fraud analytics to proactively identify instances and aspire for prediction of frauds to help instant response and recovery actions, such as blocking irregular transactions, before the payment authorisation.
35. Drafting a framework for testing resilience of payment systems, for action by RBI:
- Resilience refers to the ability to continue to operate even if a system has failed completely by switching activity to a separate system or process or a combination of both. A framework would be drafted for the same. The framework shall also include business continuity and infrastructure redundancy preparedness.
36. Benchmarking India’s Payment Systems:
- The Reserve Bank shall conduct an exercise which will aim at benchmarking India’s payment systems and gauge India’s standing against major countries across all payment systems and payment instruments.