Road-map for digital payment systems in India

The factors inhibiting the digital push are connectivity issues, inadequate acceptance infrastructure, lack of familiarity with newer, alternative payment methods, delay in getting complaints resolved and security and privacy concerns. RBI has acknowledged the same and to address these issues has put in place systems like, consumer awareness programmes, ombudsman schemes, etc.

Self-Regulatory Organisation (SRO)

RBI has been following the approach of placing discussion papers in public domain and inviting feedback before bringing in structural changes in the payment systems and also changes in regulation of payment systems. There are a variety of ways in which industry participation can be facilitated in the regulatory and supervisory process, and self-regulation is one such process. Self-regulation would involve prescribing standards, setting good governance practices and moderating deviant behaviour through voluntary agreements, peer pressure, ear-to-the-ground and other methods. Most of these activities can be institutionalised through a SRO which can engage with the regulator / supervisor and also be responsible for setting and enforcing rules for PSOs. SRO can collaborate with various stakeholders and facilitate their participation in the self-regulatory processes including helping to frame rules and monitoring compliance. SRO is expected to address concerns beyond the narrow self-interest of the industry, such as to protect customers, participants and other stakeholders in the ecosystem. A framework for recognition of SROs, as announced in the Monetary Policy Statement dated February 6, 2020, was released in October 2020 and RBI is awaiting applications for authorisation of SROs.

Offline Payments

There has been considerable growth in digital payments using mobile phones, cards, etc. Lack of internet connectivity or low speed of internet, especially in remote areas, is a major impediment for adoption of digital payments. Against this backdrop, providing an option of off-line payments through mobile devices and stored value component on cards is expected to further adoption of digital payments. Entities are being encouraged to develop offline payment solutions and a pilot scheme in this regard was rolled out in August 2020. The pilot scheme is being undertaken till March 31, 2021 and based on experience gained, a decision will be taken on roll out of the scheme.

Surveys for Digital Payments Awareness

As digital payments are a back-up and an important part of all contingency plans at the time of an emergency or a natural disaster, it is important to understand the factors inhibiting digital payments. A survey will therefore be conducted to understand the digital penetration in the country. This will help to orient policies and operations to ensure that digital footprints reach the remotest area and strata of the country. The survey will also support the efforts towards,

• operationalising the PIDF
• contributing to the one-district-in-a-state to be fully digital enabled initiative,
• understanding overall digital penetration by merchants, service providers, users, etc.

Digital Payments Index (DPI)

In the Sixth Bi-monthly Monetary Policy Statement for 2019-20 dated February 06, 2020, the Statement on Developmental and Regulatory Policies announced that RBI would construct and periodically publish a composite ';Digital Payments Index'; (DPI). The DPI is envisaged to effectively capture the extent of digitisation of payments in the country and would be based on multiple parameters to accurately portray the penetration and deepening of various digital payment modes. The RBI-DPI has since been constructed with March 2018 as the base period, i.e. DPI score for March 2018 is set at 100. RBI-DPI was published on January 01, 2021 and the DPI score for March 2019 and March 2020 were 153.47 and 207.84, respectively.

Legal Entity Identifier (LEI)

LEI envisages identification of unique parties to financial transactions across the globe and is designed as an important component for improvement in financial data across the globe. Cross-border retail payments are generally less transparent and more expensive than domestic transactions. Given the nature of cross-border transactions, there is a case for exploring the option of using LEI to identify the payment system participants, agents and distributors, in respect of cross-border services, particularly for large value payments, including expanding the implementation across all the identified segments.

Central Bank Digital Currencies (CBDC)

CBDC is a legal tender and a central bank liability in digital form denominated in a sovereign currency and appearing on the central bank's balance sheet. It is in the form of electronic currency which can be converted or exchanged at par with similarly denominated cash and traditional central bank deposits. Innovations are changing the payments space rapidly. This has made central banks around the world to examine whether they could leverage on technology and issue fiat money in digital form.

Private digital currencies (PDCs) / virtual currencies (VCs) / crypto currencies (CCs) have gained popularity in recent years. In India, the regulators and governments have been sceptical about these currencies and are apprehensive about the associated risks. Nevertheless, RBI is exploring the possibility as to whether there is a need for a digital version of fiat currency and in case there is, then how to operationalise it.

Geo-tagging

In order to measure the adoption of digital payments, it is essential to have geographical location of the payment system touch points [bank branches, ATMs, PoS terminals, BCs, etc.] across the country. The Reserve Bank has already established a framework to capture the location and business details of commercial bank branches, ATMs and BCs across the country. It is envisaged to extend a similar framework to capture and maintain information about PoS terminals and other payment system touch points.

Increased Coordination

The Payment Systems Vision 2021 envisaged that in order to have a co-ordinated approach towards regulation, 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. Accordingly, the Reserve Bank has set-up an inter-regulatory committee on Digital Payments with officials from other financial sector regulators and the inaugural meeting was held on July 31, 2020. The committee is expected to work towards overcoming frictions in digital payments arising out of connectivity issues, exchange inputs / references between / amongst regulators, enhance awareness about digital payments, facilitate digital financial inclusion, etc. The endeavour is also to have a co-ordinated approach to regulation and supervision within Reserve Bank across the different related departments - Department of Regulation, Department of Supervision, 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. The intra-regulatory committee is expected to address issues related to intra-regulatory coordination, problems in TReDS, etc. The inaugural meeting of the intra-regulatory committee was held on November 24, 2020.

Source : RBI