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.

RBI Commences Low-KYC for FinTech Customer Retention

The Reserve Bank of India (RBI), on February 5, introduced ‘low-KYC’ to let non-compliant know-your-customer accounts continue paying via mobile wallets. Prior to this, the RBI had recommended payment companies to conform to ‘full-KYC’ by February 29, 2020. As a result, approximately over 200 million mobile wallets were under the risk of getting cancelled by the regulators, owing to the approaching deadline of upgrading the non-compliant accounts to ‘full KYC’ account. Apart from this, RBI has also recommended video-KYC as an alternative to establish customer identity.

Therefore, now, mobile wallet firms such as Paytm, PhonePe, Amazon Pay, etc. and their user-base running into millions would be able to continue their association per the permission from the RBI allowing wallet service providers to continue operating their millions of non-compliant KYC accounts without any transnational limits.

With this new alternative of the RBI, a mechanism will be offered to customers wherein they will be able to convert their ‘minimum KYC’ accounts to the RBI’s ‘low-KYC’ PPI (Prepaid Payment Instrument – a semi-closed retail payment instrument introduced by the RBI in December 2019, having a monthly rechargeable limit of Rs. 10,000 or of Rs. 1, 20,000 in a Financial Year, and which is issued based on the sourcing of essential minimum details from the customer –) accounts.

This comes as a sigh of relief for FinTech firms as they were finding it difficult to onboard fresh customers and retain them following the barring imposed by the Supreme Court on telecom companies and NBFCs concerning the usage by them of Aadhaar-based KYC in 2018. Now onwards, companies will seek customer consent prior to performing ‘low-KYC’ of their accounts. However, it should also be noted that while KYC formalities were already done before, these were rendered null and void following the earlier pronouncement of the restrictions of the Aadhaar KYC method by the Supreme Court.

Following this, in February (2019), the Union Cabinet had considered promulgating an ordinance to permit voluntary use of Aadhaar number as a proof of identity for bank account opening and also for obtaining a new mobile phone connection. While the payment firms had also sought from the regulator an alternative to eKYC for onboarding and verification, the Payments Council of India (PCI) also requested the regulator to postpone the conversion of minimum-KYC accounts to full-KYC accounts deadline till February 28, 2020, owing to Aadhaar restrictions pertaining to eKYC process.

Other proposed formats of KYC in the pipeline include live video customer verification and XML internet format. It has also been reported that Amazon Pay had considered doorstep KYC for its mobile wallet subscribers.

Financial Inclusion & Financial Stability: National & International Frameworks

“If the misery of the poor be caused not by the laws of nature, but by our institutions, great is our sin.” – Charles Darwin

The realisation of Sustainable Development Goals (in particular, SDG’s Goal 1—No Poverty) set by the United Nations (UN) requires giving considerably stringent attention and concerted efforts also to financial inclusion. In 2004, the Khan Commission was setup by the Reserve Bank of India (RBI) to explore Financial Inclusion. The recommendations of the commission were included in mid-term policy review (and so arrived the advent of simplified banking accounts).

Continue reading “Financial Inclusion & Financial Stability: National & International Frameworks”

RBI & the Central Bank Digital Currency

Paper and metal printed currencies often referred to as “fiat money, is a government-issued currency that is not backed by a physical commodity, such as gold or silver”—Investopedia. Digital currency is essentially a form of intangible currency offered in digital form. It makes possible immediate transactions and ownership transfer across geographies.

The good old paper currency has been in vogue since long, with the stability of the respective governments maintaining its value. It is worth noting that it is not possible to convert these paper currencies. The central banks have also often been expressing their concern in regards to printing costs and management of paper and metal currencies.

As an alternative, of late, the Reserve Bank of India (RBI), following consultation with the Monetary Policy Committee (MPC), had expressed its intention of issuing a central bank digital currency (CBDC). For the same reason (as informed in the Reserve Bank’s Annual Report 2017-18), an interdepartmental group was formed to study and offer consultation on the requisites and viability of launching a centrally backed (fiat) digital asset. The logic, as stated by the RBI, was to control and minimise the elevating cost of printing paper (fiat) currency. Paradigm shifts experienced lately in the payments industry has directed the interests of the central banks to act proactively in this sphere. RBI opines that a (fiat backed) digital currency will, apart from minimising its bills of printing paper currency, also place the economy in a global spotlight of the digital currency world.

However, all of this is easier said than actually done. The banking watchdog realised later that the user-dependent value of cryptocurrencies and the volatile nature of it pose an imminent risk in using it as value storage or exchange medium. Entrusted with the task of ensuring enough safeguard for the investor community and protection of the consumers, RBI also acknowledged the cryptocurrency market bubble possibilities. This retreat was also an outcome of the ban on cryptocurrency exchanges in India imposed by the RBI. What followed this was the phase when the RBI totally cancelled (as reported by the Hindu Business Line) its idea to launch a CBDC.

Experts opine that RBI’s of late distrust (postponement of issuing a national cryptocurrency) for central bank digital currency also emanates from the limited comprehension of the cryptocurrency economy. For this, as suggested by industry practitioners, it is crucial to monitor the maturing sphere of the peer-to-peer economy. There is also a dire need to first prepare a comprehensively meticulous policy development framework for digital currency and blockchain technology (the facilitator of digital cryptocurrency).

Financial Inclusion: All you need to know

Financial inclusion is where people and organizations approach valuable and moderate money related items and services that address their requirements which are conveyed in a mindful and credible way. Financial inclusion is characterized by the accessibility and fairness of chances to get money-related services. The accessibility of monetary administrations that meet the particular needs of a user without any discrimination is a key goal of Financial Inclusion. Continue reading “Financial Inclusion: All you need to know”

10 Ways To Increase Your CIBIL Score in 2017

In today’s world, we need money to make money. With a plethora of banks and lending agencies opening up everywhere, one might think that procuring money will become easier, but this might not always be the case. Lending money involves huge risk and thus almost all financial organizations rely on certain criteria to index the repayment capacity of an applicant. A credit score is Continue reading “10 Ways To Increase Your CIBIL Score in 2017”