On 15 May 2019, the Reserve Bank of India (RBI) released the ‘Payment and Settlement Systems in India: Vision – 2019-2021’ document.1 The document traces the achievements of the payments industry thus far, such as growth in debit card usage at point of sale (PoS) vis-à-vis ATMs from 10.4% in 2014‒15 to 30.1% in terms of volume. It then discusses, in depth, the way forward to boost digital payment adoption across instruments. Finally, it provides a comprehensive set of guidelines on expected actionable items for various stakeholders. With ‘empowering exceptional e-payment experience’ as the overarching objective, a few of the salient features of the document are:
It is a blend of quantitative and qualitative milestones
Each of the specific initiatives has clearly defined accountable entities
The value added by digital payments is quantified in terms of percentage of the total GDP
Along with enhancing the experience of the end customer, it also aims to empower system operators, providers and other non-bank entities
The RBI has laid significant emphasis on innovation, usage of new age technology, and partnership and collaboration with domestic and international bodies for wider acceptance. The specific mention of distributed ledger technology (DLT) is noteworthy as well
Special attention is given to customer protection through guidelines for dispute redressal, boosting security of transactions through tokenisation, quantification of reduction in frauds, security of mobile payments, risk management framework, among others
Summary of vision document:
- 12 specific outcomes to boost adoption of safe, secure and resilient digital payments at multiple touchpoints
- 36 initiatives over 36 months to achieve goalposts across 4 Cs: competition, cost, convenience and confidence
Implications for stakeholders in the payments ecosystem
While the vision document has laid out the objectives, all stakeholders in the system need to gear up to help achieve the same. A few of the implications and considerations for the various stakeholders are discussed below.
Financial institutions (FIs)
The RBI expects FIs to adhere to high standards of system availability, capability, scalability, resiliency, security, dispute management, and reporting and analytics across multiple payment instruments and channels. They would also be expected to roll out new instruments and make changes in limits and pricing quickly. It might be prudent for FIs to take a more holistic view of payment systems, integrate workflows across multiple payment instruments, and adopt common messaging standards and formats. A framework such as an integrated payments hub might act as a layer to standardise payment flows across multiple customer-facing and internal systems. The addition of any new channel or any enhancements to existing channels can then take significantly less time as internal complexities would be eliminated.
Specific directions on customer education, fraud prevention, and financial inclusion through significant usage of feature phone-based payments, QR code, debit cards and USSD channels indicate that firms need to continuously invest in building awareness of digital payments and continue to work towards creating a digital India. This needs to be coupled with reasonable, minimum transaction-based pricing, which may entail a potential revision in overall charges and changes in business and operating models.
Payment service providers
As payment service providers and payment gateway aggregators will be bought under the purview of the RBI, they will need to comply with transparent pricing structures, have a robust risk and governance framework, and seamlessly support payments across channels. Emphasis on merchant acceptance and tokenisation and the Acceptance Development Fund (ADF) for PoS infrastructure provide opportunities for payment firms to test and develop innovative and secure payment applications for both customers as well as merchants. Like a few global players, they can work with FIs to build a digital profile of customers in an omni-channel transacting environment. This will help payment firms to offer more customised services and address frauds and disputes better.
Regulators
Stakeholders have been making several efforts around innovation, including FI-FinTech partnerships, corporate innovation programmes, sandboxes, roll-out of innovation labs, testing of new age technologies such as DLT, tokenisation and contactless payment systems. The stage is now set for various firms to boost collaboration and partnership and ensure that all the successfully conducted pilots are embedded into the mainstream environment. The RBI also plans to work cross-functionally with other regulators like SEBI, the Insurance Regulatory and Development Authority (IRDA), Telecom Regulatory Authority of India (TRAI) and other global entities to create a frictionless payment experience across borders. The RBI, on its part, would need to define a proper governance framework for partnerships; accountability and responsibility of various stakeholders; and expectations from participants, regulators and educational institutions with a more detailed breakup of timelines. In general, the RBI needs to remove all ambiguity.
Future payments trends in India
Targets of ‘Payments vision 2019‒21’:
- Reducing paper-based clearing volumes to 2% in the digital ecosystem
- Achieving 100% average annualised growth for UPI and IMPS transactions
- Increasing acceptance of digital payments through QR and PoS terminals, with a target of 5 million terminal deployments by 2021
- Reducing payment failures and educating customers on digital payments
- Regulation and inclusion of payment service providers in the payment ecosystem
- Reducing the customer dispute resolution time frame
- Focus on new innovative payment methods such as DLT, tokenisation and contactless systems
In the coming years, the country will see a greater shift towards digital payments due to an increase in acceptance points and reduced transaction cost. Banks would launch new technologies at a much faster pace to hold on to their position in the market and not lose it to new entrants in the industry. Payment service providers would need to adopt a good governance mechanism and provide robust support to financial entities. In addition, banks and service providers would place greater emphasis on providing a seamless payment experience. Customers, on the other hand, would enjoy nationwide card acceptance with an increase in PoS terminals and an aggressive grievance redressal system in place. The RBI’s vision is very clear: to foster innovation, expand reach internationally and reduce payment failures in the ecosystem.
Buoyed by massive opportunities and the recent introduction of new age payment instruments, India is now poised to become one of the most exciting markets for digital payments. The RBI’s forward-looking vision document aims to put all the pieces together and chart an exciting and formalised journey for digital payments in the country. It is imperative that all stakeholders work towards achieving the necessary outcomes.
