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.

BUDGET 2020 – Interpreting the Fine-print for FinTech India & Its Stakeholders

The incumbent Finance Minister Nirmala Sitharaman announced in her address of the Union Budget 2020 on February 1 (2020) the ambitious plan to transform India into a $5-trillion economy by 2024. The primary focus is inclined towards reinvigorating investments and consumption demand to achieve this target – restoration of common man’s confidence and also that of market entities is the key. The FinTech industry was expecting from the budget a revision of (personal) tax slabs to smoothen financial burden on the middle-income groups (while even reduced GST was voiced as an expectation coupled with appropriate tax incentives plus easing access to credit) –, so as to boost spending, thereby enhance instant loan and credit demand and supply dynamics.

The concerns were reasonably dealt with in the Union Budget 2020 pronouncement as the government introduced new personal income tax slabs and rates set to elevate disposable incomes and consumer spending. As also for the startups, the abolition of Dividend Distribution Tax (DDT) is poised to spur investments; further, the postponement of tax payment on ESOPs is a welcome move as is also an increase in the turnover limit to Rs. 100 Cr for accessing tax benefits. But, that’s not all; to boost business activities in India, the corporate tax is now set at 22% (amongst the lowest in the world).

However, per the Economic Times BFSI’s conversation with Venture Catalysts’ Anuj Golecha, the FinTech industry doesn’t stand much to gain from the Union Budget 2020 apart from getting NBFCs into the system of TReDS (Trade Receivables Discounting System – a liquidity boosting mechanism that FinTechs can utilise). Mr. Golecha clarifies that the ESOP relief isn’t made accessible to FinTechs, since the thin details of the budget document mention that only such startups are eligible for the ESOP benefits (and the tax relief that are extended for 10 years and the Rs. 100 crore turnover limits) which are recognised by the Inter-Ministerial Board (IMB) and which also qualify u/s 80-IAC of the Income-Tax Act, 1961, i.e., mere 221 startups in India. This figure for income tax exemption seeking entities was 94 out of 15,798 government-registered startups, as of February 7, 2019, as reported by Indian Express. This means that neither then (27,000 startups – as of 2019), nor now (30,000 startups – as of 2020), are all the startups registered with the DPIIT (Department for Promotion of Industry and Internal Trade) made eligible for claiming ESOP benefits of a 5-year (proposed) deferment of tax payments by startup employees.

Another development worth mentioning is that the zero-MDR (Merchant Discount Rate) is now getting implemented in UPI and RuPay (following the promise made in the Union Budget 2019). MDR is essentially the amount that the merchants pay to banks for accessing the infrastructure that facilitates digital payments. While FinTech startups offering merchant payment services can rejoice, the Payments Council of India (PCI) has a deviating opinion on this development. The PCI Chairman Vishwas Patel states that the zero-MDR move is poised to limit innovation and investment – capable of rendering the business model unviable. He also opines that if the government is aiming to boost payment digitisation, then it should instead be done via a controlled and lower MDR coupled with added tax benefits to merchants. Lastly, he conveys that if MDR isn’t going to be charged to merchants, it’s the government who should bear the cost, reports Economic Times.

However, with even the government anticipating India’s digital economy to contribute $1 trillion to the goal of achieving the $5 trillion economy target, it’s motivating to note that UPI transactions have registered over a billion transactions and the domestic RuPay card has garnered a positive response (of acceptance) in a number of Asian and Middle East countries. With this, if the government can assist in increasing liquidity, inculcating transparency and easing the burden of compliance on the FinTech sector, the future will have promising prospects for the FinTech, its stakeholders, and the economy of India.

Gig Economy of India – Issues & Solutions in 2020

Project-to-project basis work is soon gaining momentum even in India, as the gig economy is entering its second phase of organised development (with market-wide acceptance and adoption). The application-based platforms offering services like cab booking, house renting, food (doorstep) delivery are estimated to employ over 2 lakh people in companies such as Ola, Zomato, Swiggy, UBER, etc. While profitability has soared for such companies, employee exploitation has also increased resultant to which the government has exhibited mindfulness towards ensuring employee welfare by developing the required legal framework.

The gig economy is here to stay in India, as is evident by the recent initiative taken by the prestigious National Law School of India University (NLSIU), Bengaluru, of submitting draft guidelines for the gig economy. NLSIU is set to submit the draft guidelines to the government in February 2020, thereafter; the Karnataka government would either table a bill in the assembly or frame suitable guidelines under the purview of the incumbent laws meant to protect the rights of employees. Notably, the Karnataka state legislature’s upcoming budget session might see the draft getting tabled, reports Times of India. It has also been clarified that upon the draft being prepared by NLSIU, it might get debated in an open forum.

However, it’s a fair question to ask that has our labour market matched the pace with the incoming of the gig nature of work? Assuming a full-time gig work summons constant development of certain innate skills that are vital for gig workers, these are: entrepreneurship, networking, financials, and a knack of deciphering human psyche. While in India, at present there isn’t any regulation to standardise rates paid to gig workers. This makes mastering the art of negotiation a prerequisite to a thriving gig work career. Soaring tech usage in India has escalated those who have previously worked in the unorganised sector to be able to obtain better employment. However, even then, the jobs created in the gig economy mostly still get developed in the informal space, wherein some red flags do exist when attempting to apply this model in reality.

Essentially, new concepts like the formation of a Universal Basic Income (UBI), skill development programmes, ensuring availability of secured gig-based employment and freelance opportunities, and workplace protection, among others, is necessary to be looked upon. Hopefully the draft guidelines for the gig economy initiative underway at the NLSIU is received well by the Karnataka government and the state legislature, and upon implementation of the same, other states and governments also show active interest in inculcating the same spirit and safety in their respective regional gig workforce. The flexible work economy isn’t going anywhere, with increased adoption of technology and the availability of seamless payment avenues all that is remaining to be dealt with to make the gig economy a thriving market for the workforce is safety, security, and assurance of reasonable remuneration.

The BCG 2019 Report: The New Freelancers, states, “As per a survey of 6500 senior executives worldwide, 40% of respondents said they expected freelance workers to account for an increased share of their organization’s workforce over the coming five years.” (FlexingIT Project Trend Data: 2018-2019.

FlexingIT research also states that, “over a 3rd of companies in India estimate up to 50% reliance on flexible talent in the next 5 years.” Per a study conducted by McKinsey, estimations indicate that up to 20%-30% of the workforce in developed markets is engaged in independent work.Also, as reported by ASSOCHAM recently, the Gig Economy of India is definitely marching towards becoming a strong component of India Inc’s strategy as the sheer size of the gig economy is projected to grow at a CAGR of 17%, whereas it is likely to hit a gross volume of $455 billion by 2023.

FinTech India – Mobile Phones, FinTech & the Incoming of New Players

The economic challenges presented in 2019 coupled with protectionist regulatory measures didn’t actually hinder the development of the FinTech ecosystem of India as the startups in this domain managed raising over USD 365 million in July 2019, while the total investments entering in this sector being USD 1.16 billion, per the research conducted by IBS Intelligence. 

The FinTech sector is poised to witness established firms entering with much optimism. These include companies such as PhonePe and PineLabs (both having raised 100 million), BharatPe (raising USD 75 million), PayMate (raising USD 25 million), and Niyo (raising USD 35 million). As reported by Tracxn, the total investments entering in India’s FinTech sector stood at USD 800 million in the 1st half of CY 2019 (up 14% from the USD 688 million raised in 1st half of CY 2018. Whereas in 2019, FinTech startups raised over $3.2 billion.

However, that’s not all; a couple of top smartphone vendors are also making their presence felt in the FinTech startups space of India. Xiaomi launches MiCredit, in association with domestic startups such as CreditVidya, ZestMoney, Aditya Birla Finance Limited, Early Salary and Money View (to determine credit worthiness and financing eligibility). Xiaomi is intending to offer digital lending (credit in the range of Rs. 1000 and Rs. 100,000 at reasonable interest rates). In March 2019, Xiaomi started Mi Pay (a payments app powered by UPI) in India as a unit of its Mi Finance ecosystem (having around 20 million registered users).

Following the trend of entering the FinTech domain are other popular mobile phone brands, viz. RealMe, OnePlus and lately OPPO, as well. OPPO Kash by OPPO, is scheduled to be launched in June 2020 in India, to offer 1-click micro-loans coupled with flexible repayment features. Realme India started its payments service, Realme Paysa in December 2019, with the aim of being top-5 new financial services offering entity in 3 years.

As reported by AsianAge, mobile wallet transactions in India soared by 40 times in the preceding 5 years. Much of this momentum can be attributed to the mobile phone-based financial services global standard of FinTech, the Unified Payment Interface (UPI – enabling secure, real-time transfers even without a bank account). Mobile wallet transactions in India have increased 40 times in the preceding 5 years. Compared to traditional financial models, mobile finance gives distinct advantages, as follows: 1. Digital transactions generally don’t cost when initiated. 2. In-person services and cash transactions are now innate elements of routine banking expenses. 3. In the case of mobile finance, clients maintain their balance money in digital format. 4. In the absence of transaction costs, sending and receiving money from individual banks or mobile service providers is easy. 5. Mobile communication leads to high-volume of data, usable by banks and service providers to develop optimally profitable services. 6. Traditional credit scores get done away with as the subscribers without financial credit history also obtain the necessary credit to run their small businesses. 7. Mobile platforms have bank accounts linked to their clients on a real-time basis, thereby, banks can process account information. 8. Microfinance is also made accessible to those no credit risk proofs.

As per Financial Express, smartphone users in India are poised to double to reach 829 million by 2022 (growing at a CAGR of 15.5%). Coupled with this, there is also the influx of mobile form factor in the Point of Sale (PoS) devices to accept device-based payments (the growth numbers have been forecasted at a CAGR of 54.2% in the period 2019-23, per the Mobile PoS Payments, Statista, 2019