RRBs Permitted by RBI to Install POS Terminals

The Reserve Bank of India (RBI) Governor, Shaktikanta Das, on February 06, 2020, read the announcement titled, “Guidelines on Merchant Acquiring Business – Regional Rural Banks (RRBs),” wherein, under the Statement on Developmental and Regulatory Policies (Feb. 06, 2020), its decision to permit RRBs to act as merchant acquiring banks via the usage of Aadhaar Pay – BHIM app and POS (Point Of Sale) terminals – was made official.

Put it simply, the RBI has now allowed RRBs to install the POS devices of their own – given that they have consent from the RBI of undertaking mobile banking. Apart from this, it’s also made mandatory by the RBI that the IT systems and Core banking solutions of the RRBs be subjected to an IS (Information Systems) Audit and have deployed secured systems.

The rationale communicated by the Governor revolves around giving an impetus to digital banking and permitting RRBs to be able to offer cost-effective and user-friendly alternatives to their customers. Bringing RRBs on a level-playing field with other commercial banks, RRBs will be subjected to offer the warranted IT infrastructure to enable seamless processes, secured transactions and facilitate timely customer grievance redressal.

It has also been clarified that the RRBs will also be required to make sure the establishment of a board-approved policy for merchant acquisition for card transactions. It has also been specified by the RBI that RRBs intending to deploy POS should be having net-worth of Rs. 100 crore or more as on March 31 of the preceding financial year, plus at least a CRAR at 9% and NET NPA lower than 5%.

The compliance requirements for RRBs also mention due compliance with instructions and guidelines on Merchant Acquisition for card transactions and POS, as issued from time-to-time by the Department of Payment and Settlement Systems, RBI. The exercise forms a crucial part of the initiative taken by the RBI to better credit flows to needy sectors; strengthen monetary transmission, regulation and supervision; expanding and deepening financial markets; and improving payment and settlement systems.

Also, on the digital payments front, under its Statement on Developmental and Regulatory Policies, the RBI has also announced scheduling in April 2020 the release of its framework to establish Self-Regulatory Organisation (SRO) for Digital Payment System. This is owing to the considerable growth trajectory exhibited by the entities in the payment ecosystem warranting a mechanism for orderly operations of the entities in the payment system, and also to foster fine practices on security, consumer protection, pricing, etc.

The RBI specifies that the SRO will act as a 2-way communication channel among the players and the regulator/supervisor. Lastly, again on the grounds of the rapid development of payment systems in India, the RBI has communicated its plan to develop, and from time-to-time, publish a composite “Digital Payments Index” (DPI) to record the degree of digitisation of payments in an effective manner. Multiple parameters exist on which the DPI would be based to accurately mirror the penetration and deepening of different digital payment modes starting July 2020.

India in the Global Microscope for Financial Inclusion 2018

Introduction

The Global Microscope report released periodically by the Economist Intelligence Unit gauges the enabling environment for financial inclusion (furthering the objectives of the Sustainable Development Goals) considering 5 diverse categories (government and policy, stability and integrity, products and outlets, consumer protection, and infrastructure) and 55 countries. The 2018 research report witnessed the model development of the key enablers of financial inclusion. It also saw the inculcation of the indicators on digital financial services to the research methodology. The Global Microscope report essentially discusses the key growth topics of the developing economies: consumer protection, enabling environment, financial inclusion strategy, policy, regulation, and government initiatives, and trends. The Microscope assesses the regulatory and policy environment to which the key players in the financial inclusion domain are exposed to: banks, NBFCs, digital money issuers, and cross-border payment companies. The vital contributions of inclusive insurance, financial agents, FinTech firms, and credit information companies (CICs) are also examined.

Continue reading “India in the Global Microscope for Financial Inclusion 2018”

G20, India, & Financial Inclusion: En Route to 2022 Summit

Introduction: The Milieu

The 1990s witnessed the advent of microfinance at the mainstream in international development policies. There was a prime focus on market development by private financial firms. As the decade of the 2000s approached, the ambience of state legitimacy (via policies and strategies of financial inclusion) made its way. The warranted summoning of government interference is owing to the (still incumbent) ailing realities shaped by the worrying existence of social and geographical inequalities, gender biases, etc. With this stance, financial inclusion is envisioned as an instrument to establish, transform, and reinforce state institutions. The deployment of financial inclusion (social) policies in India is meant to facilitate access to marginalised (susceptible) populations of afresh rights and inclusivity. Also, such social policies having financial inclusivity agenda at the core could also promote the incoming of new alternatives to organise the behaviour of recipient (fragile) segment of the society.

Continue reading “G20, India, & Financial Inclusion: En Route to 2022 Summit”

FinTech Adoption, Financial Inclusion, & The Next Regulatory Challenges

Introduction to FinTech

Investopedia defines FinTech as: “new tech that seeks to improve and automate the delivery and use of financial services. At its core, FinTech is utilised to help companies, business owners and consumers better manage their financial operations, processes, and lives by utilising specialised software and algorithms that are used on computers and, increasingly, smartphones.”

Ernst & Young’s (EY) definition of FinTech is as follows: “FinTech: organizations combining innovative business models and technology to enable, enhance and disrupt financial services.” EY also states that its FinTech definition also encompasses, apart from early-stage start-ups and new entrants, a reference also to scaling firms, growth-stage firms, and non-financial services firms. The uniqueness of FinTech stems from the nature of its characterisation and the market conduct regulation (of the firms), collectively to which it’s (the FinTech industry) subjected owing to the fact that it manages assets, incomes, wealth, retirement funds, and salaries of people subscribing from all walks of life (for this reason, FinTech’s mass-adoption-rate and financial inclusion matters, to ensure a holistic growth of the financial services industry and its stakeholders).

Continue reading “FinTech Adoption, Financial Inclusion, & The Next Regulatory Challenges”

P2P Lending & Conventional Banking: A Complement or Competition?

What is P2P Lending?

Peer-to-peer (P2P) lending or crowdlending is a sort of debt financing that facilitates borrowing and lending money for the individuals without resorting to the intermediary services offered by an official financial institution. P2P lending eliminates the erstwhile existence of middleman from the loaning process. Categorised as a type of crowdfunding, P2P loans offer personal unsecured loans to individuals and small businesses intending to subscribe to educational loans, real estate loans, traditional personal loans, etc. P2P platforms provide a platform meant to match borrowers with lenders. Upon a successful matching, the parties (borrowers and lenders) decide on a rate of interest and the principal amount to be loaned. The P2P platform companies usually charge a fee to assist borrowers or lenders access or offer money. Online P2P lending is an emergent industry with the promising potential to cater to the customer base so far left underserved by the conventional financial institutions. Continue reading “P2P Lending & Conventional Banking: A Complement or Competition?”

Trending Consumer Internet Firms Eyeing FinTech Services

The perception of consumers towards the relatively new facility of the mobile wallet is that of it being a next-generation payment alternative. The technology facilitates a totally seamless disbursement of payments through an electronic wallet, making cards or cash seem passé. The elevating smartphone diffusion having assisted the companies seamlessly communicate with their customers, has also led to the increasing volume of internet users (consumer segment) getting escalated into the network of content and commerce.

Continue reading “Trending Consumer Internet Firms Eyeing FinTech Services”

Examining the Nuances of Credit Scores & Credit Risk in India

What is a Credit Score?

A credit score is essentially a determination of the capacity of an individual to repay the borrowed sum of money on credit. This statistic primarily mirrors the creditworthiness of a person wanting to access credit in the future. The credit rating agencies, or the Credit Information Companies (CICs), viz. Equifax (ECIS), CRIF High Mark, CIBIL TransUnion—the first CIC in India, and Experian, generally assimilate the required data on various determinants such as the duration of the credit subscription, repayment history, credit inquiry, etc., to determine the credit score statistic of the credit-seeking applicant. Continue reading “Examining the Nuances of Credit Scores & Credit Risk in India”