RBI Plans a Digital Payments Index

The Reserve Bank of India (RBI) is poised to launch by July 2020 a Digital Payments Index (DPI) to gauge the impact and reach of digital payments in rural, urban, and semi-urban areas. As a part of RBI’s Statement on Developmental and Regulatory Policies, the DPI will be based on various parameters (viz. the level of rural penetration and innovation in the present modes and channels) to reflect with finesse the penetration and deepening of various digital payment modes.

The RBI is also intending via its DPI exercise to comprehend in detail the impact of its policy decisions on the digital payments market. By ‘policy decisions’ what is meant to be conveyed is such decisions as the waiving of Merchant Discount Rate (MDR – the fees paid by a merchant to a bank for accepting payment from their customers through cards or the Unified Payments Interface (UPI)) on UPI transactions. In the recently held Union Budget 2020 it was announced that no charges shall now onwards be levied on UPI and RuPay transactions, and that MDR might also get scrapped on all of the transactions initiated via debit cards.

With the DPI scoring analysis, consumers and various stakeholders will be able to analyse developments of the local area in terms of infrastructure, access, demographic, and acceptance concerning growth in relation to broader domestic and global digital payments standards. DPI is also expected to steer the financial inclusion agenda.

The RBI considered development of a DPI owing to the stupendous growth recorded by the digital payments industry in India in the recent years. As reported by Inc42, in regards to the volume of total digital transactions, RBI numbers state that a growth rate of 58.8% in 2018-19 was recorded. The 2017-18 transactional volume was 50.4%. In value terms, digital transactions soared by 19.5% in 2018-19, as against 22.2% in 2017-18.

Throwing light on the preceding developments revolving around the digital payments space, it’s worth mentioning that the RBI, in January 2019, constituted a five-member Digital Payments Committee with Nandan Nilekani as its head. The “High-Level Committee for Deepening of Digital Payments” had as its objective to encourage digitisation of payments and boost financial inclusion. Preceding to this development, the NITI Aayog in its report titled, Digital Payments – Trends, Issues and Opportunities, released in August 2018, had projected the industry to grow $1 trillion by 2023.However, on the flipside, the incumbent government should also now act upon considering submission of a draft Bill on Payments Regulatory Board (as was recommended by the panel headed by Economic Affairs Secretary Subhash Chandra Garg – awaited since Q4 2018) for Cabinet approval. Given that UPI recorded 955 million transactions valued at Rs. 1, 61,456.56 crore in September 2019, it’s a high-time time now that an independent PRB gets established to streamline the payments industry in India. Whereas, per the reports by Statista, in India, the total transaction value in the Digital Payments segment amounts to US$81,197m in 2020. It should also be noted that Google has recently expressed its recommendation for the US Federal Reserve to ‘replicate’ India’s UPI model for its proposed interbank real-time-gross settlement (RTGS) service. The DPI is set to strengthen India’s position of being a globally advanced digital payments leader.

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.