CIOInsider India Magazine

Digital payment methods have not only helped people stay safe from the coronavirus or waiting in long queues at ATMs. They are especially helpful in situations where there is no change to make the exact payment. Not only that, they also serve transparency in case the shopkeeper accuses you for not receiving the payment.

After the COVID-19 pandemic hit, online shopping, as well as, digital payment methods are immensely pouring into India’s digital payments growth. A report by CLSA indicates that the value of digital payments is said to reach $ 1 trillion by 2026. At the speed of how these digital payments are growing, the Reserve Bank of India (RBI) set up a ‘Payments Vision 2025’ outlining its motives on the architectures of digital finance.

RBI aims to help India rise as a powerhouse of global payments, with its core theme being ‘E-payments for Everyone, Everywhere, Everytime. Let’s look at how the central bank plans to execute its goal for the same.

Safe and Secure Online Payment for Every Citizen
Digital finance and financial literacy has barely reached out to the people dwelling in the remotest parts of the country. Through the ‘Payments Vision 2025’, the challenge is not only tackled but is also enhancing safety and security for rural people.

The very objective of its theme stands to provide every user with safe, secure, fast, convenient, accessible and affordable e-payment options.

The activities assigned under the vision’s document capture five anchor goal posts: integrity, inclusion, innovation, institutionalization and internationalization. Under each are 47 initiatives that RBI aims to 10 outcomes, including increasing the number digital payment transactions thrice, ensuring UPI registers 50 percent annualized growth, Immediate Payment Service (IMPS) and National Electronic Fund Transfer (NEFT) registering 20 per cent growth, and debit card usage surpassing credit card usage.

RBI also expects to witness a surge in the payments transactions turnover to eight percent through GDP, constituting increase in debit card transactions at point-of-scale terminals (PoS) by 20 percent, increase in prepayment instruments (PPI) transactions by 150 percent.

To make this happen, RBI wrote down a set of guidelines for fintechs and big techs to follow.

Objective of the Regulation for Fintechs and Bigtechs
First up, RBI has made it clear to publish a discussion paper specifying the need for proportionate regulation encompassing domestic incorporation, reporting, data use, etc, on big techs and fintechs.

“BigTechs and FinTechs play an invigorating role in onboarding new users and customizing payment experience. Given their increasingly dominant role in the payments ecosystem, a discussion paper on the need for proportionate regulation by the Reserve Bank encompassing domestic incorporation, reporting, data use, etc., shall be published”, the RBI said

The vision document also notes that BNPL (Buy Now Pay Later) services have become a new payment alternative alongside existing payment methods such as cards, UPI and net banking.

Since RBI observed that this payment method, facilitated by a few payment aggregators, leverages the existing nodal account to route payments between a BNPL customer and a merchant. For the same, it plans to examine the payment methodt, as well as, propose befitting guidelines on payments involving BNPL.

V Swaminathan, Executive Chairman, Andromeda Loans and Apnapaisa denotes that RBI will look into the flow of cash in distribution, while improving overall digital transactions in the country.

On another note, RBI is also seeking to improve market trading and settlement hours.

More Support to be Offered to Money Markets
Currently, money markets, as well as, capital markets operate at fixed hours. However, the RTGS and NEFT which enable settlements in these markets operate 24/7. RBI says that it will support the increase in market trading and settlement hours.

With a view to leverage the availability of payment systems on a 24x7x365 basis, the central bank aims to stretch the trading hours of these markets to make longer market availability for trading and settlement, in conjunction with the concerned market demands of the Reserve Bank.

For processing online merchant payments using internet and mobile banking, RBI is dropping a framework for the same. Since merchant payment transactions, done using mobile or net banking, are processed through payment gateways or aggregators. It appears that this process delays merchant settlements. Therefore, RBI is releasing a framework to ensure every transaction is processed through a payment system.

Industry Experts’ Reaction
Anand Kumar Bajaj, founder, MD and CEO of PayNearby, shared opinion on inclusion and innovation being crucial goal posts of RBI’s vision document. He explained that pursuing the collective goal of financial inclusion, is important to deepen engagement with stakeholders and extending the country’s outreach deeper into the actual economy. He stressed that its important to engage private enterprises which are accessible among the people, to drive commerce up to the mark.

Like most industry experts, Avinash Godkhindi, MD and CEO, Zaggle also said that the UPL and RuPay have been a big part in the country’s phenomenal strides in payments in the last few years. He believes that taking these methods globally will help the country fetch a name as an undisputed global leader in payments. Another game changer he believes is the linking of credit cards to UPI will result in globalization of India's Central Bank Digital Currencies (CBDCs).

With digital payments on a rise, RBI has also kept track of how the paper instruments were doing and the result is not surprising.

How Physical Cash were Doing
The usage of paper instruments has drastically decreased over the same time period, with its proportion in total retail payments falling from 19.62 percent to 11.47 percent in value and from 3.83 percent to 0.88 percent in volume.

The central bank had stated in the document's release that ‘Payments Vision 2025’ had been created after taking suggestions from numerous stakeholders and advice from the Board for Regulation and Supervision of Payment and Settlement Systems of the RBI.