INTRODUCTION
The Department of Payment and Settlement Systems of the Reserve Bank of India (hereinafter referred to as the “RBI”) issued the Payments Vision 2025 whitepaper on 17.06.2022. The paper examines the attainment of the goals outlined in the 2019-21 payments vision and lays out the vision for development of Payment mechanism in India until 2025.
The Reserve Bank’s under its ‘Payments Vision 2025’, intends to triple the volume of digital payments and to establish India as the worldwide payments powerhouse.
The RBI’s vision emphasizes on attainment of five goals i.e., integrity, inclusiveness, innovation, institutionalization, and internationalization. The theme of the vision statement is’ e-payments for everyone, everywhere, and every time’. This theme is based on the preceding vision’s features of safe, secure, fast, convenient, accessible, and affordable payment methods.
THE PAYMENTS VISION 2025
The Payments Vision 2025, proposes a wide range of innovative payment systems, regulations for BigTechs, fintech, and buy-now-pay-later (BNPL) systems, and the introduction of a central bank digital currency (CBDC).
The usage of technology has resulted in a significant increase in the number of payment intermediaries. These intermediaries contribute to a more efficient and accessible payment ecosystem. Although the Digital Payment Aggregators are already regulated by the RBI, the RBI under its vision aims to include and directly regulate key intermediaries, including offline Payment Aggregators.
Payments Vision 2025 is developed after taking into consideration various stakeholders and assistance from the RBI’s Board for Regulation and Supervision of Payment and Settlement Systems.
CURRENT MECHANISM FOR PAYMENT AND SETTLEMENT SYSTEM vis-à-vis PAYMENT VISION 2025
The keynote changes are as follows:
- The RBI uses e-Kuber and Real Time Gross Settlement (RTGS), for payment settlement which reduces settlement risks. The RBI is aims to improve the efficiency of members’ liquidity management and will investigate the prospect of constructing a liquidity bridge between the two systems. This would allow payments to be transferred from one system to another without the need for member participation.
- The Legal Entity Identifier (LEI) code is a 20-digit unique identifier used to identify financial transaction participants all over the world. LEI is a metric for improving the quality and accuracy of financial data systems in order to improve risk management. The usage of LEI in payment systems aids in the unique identification of the parties involved in the transaction as well as the creation of a single identity for an entity across several applications. The RBI aims to investigate the application of LEI in critical areas such as sanctions screening, Know Your Customer (KYC), corporate invoice reconciliation, and fraud detection.
- Moreover, currently, the National Electronic Funds Transfer (NEFT) runs in half-hourly batches, the RBI aims at enhancing the frequency of batches for NEFT payments in order to complete such transactions more quickly.
- Payments made at the point of sale (PoS) machines are currently only processed through the relevant card network, whereas ATM transactions are processed through either the National Financial Switch (NFS) or the relevant ATM networks. The RBI will investigate the feasibility of adopting a National Card Switch to process such transactions and to stimulate competition, which would result in better products for cardholders.
- Continuous Linked Settlement (CLS) is a global program that is used to reduce settlement risk in foreign currency deals. CLS presently offers cross-currency settlement in 18 different currencies. CLS is a third-party member in which the Clearing Corporation of India acts as an aggregator for its member banks. If INR is added as a currency in CLS, its global acceptance will rise. Because India currently has an outstanding financial market infrastructure, the RBI intends to launch a conversation to have the INR added as a currency in CLS.
- The United Payments Interface (UPI) enables quick real-time payment settlement via a Virtual Payment Address. Transactions over this payment interface have been steadily expanding as a result of UPI’s quick real-time cash transfer. Users may currently only link bank accounts and debit cards to their UPI Virtual Payment Address. The RBI aims to integrate credit cards and the credit component of a bank account to UPI in order to make payments from their UPI Virtual Payment Address more convenient.
- RTGS presently only settles domestic transactions in accordance with the ISO 20022 standard. The RBI seeks to align RTGS with the globally acknowledged standard for cross-border payments. The RBI will also investigate the feasibility of extending RTGS to settle payments in key world currencies such as the Euro, US Dollar, Yen, pound, and so on, via bi-lateral or multi-lateral agreements.
KEY INITIATIVES UNDER THE PAYMENT VISION 2025
One of the most significant initiatives under the payment system Vision 2025 is the globalisation of UPI, RTGS, NEFT, and RuPay cards, by entering into bilateral treaties with nations, particularly those covering the USD, GBP, and Euro enable online payments at lower transaction charges.
Further, the RBI is taking steps to improve safety and security for rural populations, where digital and financial literacy remain major hurdles.
The RBI study also proposes geotagging digital payment infrastructure and transactions, as well as revising criteria for prepaid payment instruments (PPIs), including closed system PPIs. It also recommended a regulatory framework for all important intermediaries in the payments ecosystem, as well as linking credit cards and credit components of banking products to UPI.
Other recommendations include improving the Cheque Truncation System (CTS), integrating One Nation One Grid clearing and settlement, and developing a payment system for processing online merchant payments via internet and mobile banking. It also advocated BigTech and FinTech regulation in the payments area.
The RBI further aims at Investigating the BNPL technique be investigated and those relevant criteria for BNPL payments to be developed. BNPL services have evolved into a new payment mechanism in addition to conventional payment methods such as cards, UPI, and online banking. This channel, which is provided by a few payment aggregators, uses an existing nodal account (escrow account following authorization) to transfer payments between BNPL customers and merchants.
AMLEGALS REMARKS
The RBI’s Payment Vision aims to address and develop the (4Es) i.e., ‘E-Payments for Everyone, Everywhere, Every time’ (4Es), with the overarching goal of providing every user with safe, secure, fast, convenient, accessible, and affordable e-payment choices.
The RBI has introduced the Payments Vision 2025, with the aim of attaining the goal of establishing India as a worldwide payments powerhouse. Although the pandemic raged across the country causing sever hardship to the citizen and economy, it had pushed India well on its way of realizing its payments goal, since digital payments surged exponentially in volume and popularity during pandemic, owing to the government’s relentless push and the growth of rural fintech.
The RBI is constantly facilitating and encouraging digital transactions in order to develop Digital Payments in India. Furthermore, with the UPI on its side, momentum is already building, and the nation anticipates having various alternatives for transacting regardless of the amount to be transacted.
In the last few years, India has made tremendous progress in payments, with UPI and RuPay being the most notable success stories. However, in order to achieve the goal envisioned under payment Vision of making India the Payment Hub, there is lot to do with respect to introduction of stringent regulation and framework for securing digital payment in India.
-Team AMLEGALS, assisted by Ms. Devanshi Jain (Intern)
For any queries or feedback, please feel free to get in touch with tanmay.banthia@amlegals.com or mridusha.guha@amlegals.com
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