The use of digital payment systems such as mobile wallets, net banking, electronic authentication and other forms of payments that diverge from the traditional payment methods to a cashless economy have witnessed a massive surge in India. The rapid and constant evolution of payment ecosystems has gained momentum by being facilitated with technology and innovation. Additionally, the COVID-19 pandemic has induced consumers to engage in cashless transactions instituting a behavioural change that resulted in a massive upsurge of online transactions.
At this critical juncture, the RBI has released is Payments Vision 2025 document, highlighting crucial initiatives and goals, while addressing the most pressing challenges to the digital payment system in India.
Payments Vision 2025 – Core Themes and Outcomes
The core theme of the 2025 Payments Vision document is ‘4Es’ – ‘E-payments for Everyone, Everywhere, Every time’. The goals and vision of the RBI, are categorised in the Payments Vision 2025 documents into five anchor goalposts – Integrity, Inclusion, Innovation, Institutionalisation and Internationalisation.
Upon embarking on the initiatives highlighted under the five goalposts, the RBI aims to achieve the following outcomes –
1. Volume of cheque-based payments to be less than 0.25% of the total retail payments;
2. More than 3x increase in number of digital payment transactions;
3. UPI to register average annualised growth of 50% and IMPS / NEFT at 20%;
4. Increase of payment transaction turnover vis-à-vis GDP to 8;
5. Increase in debit card transactions at PoS by 20%;
6. Debit card usage to surpass credit cards in terms of value;
7. Increase in PPI transactions by 150%;
8. Card acceptance infrastructure to increase to 250 lakh;
9. Increase of registered customer base for mobile based transactions by 50% CAGR; and
10. Reduction in Cash in Circulation (CIC) as a percentage of GDP
Some of the highlights of the Goalposts enshrined in the RBI’s payment vision 2025 are-
Integrity Goalpost – Key Initiatives
Under this goalpost, the RBI aims to implement initiatives that give payments systems the integrity it needs to building customer confidence, especially considering the massive influx of first-time users that have embraced these modes of payments (which can be attributed to the COVID-19 pandemic).
Alternate Authentication Mechanism for digital payment transactions
The RBI aims to introduce alternatives to SMS based OTP 2-Factor authentications due to increasing instances of phishing, vishing and smishing of confidential and sensitive financial information. Alternate risk-based authentication mechanisms leveraging behavioural biometrics, location / historical payments, digital tokens, in-app notifications, etc., shall be explored.
Broaden Scope of LEI in all payment activities
Additionally, the RBI will take steps to encourage the use of LEI (Legal Entity Identifier) in payment systems. LEI is a 20-character alpha-numeric code used to uniquely identify parties to financial transactions worldwide. This ensures speed and transparency, even in cross-border payments. The RBI also envisions expanding interoperability of contactless transit card payments in the offline mode to facilitate seamless travel with a single payment instrument usable across different transit operators.
Expand interoperability to contactless transit card payments in offline mode
The feature of tap-and-go offline payment was initially permitted for transit payments, considering the requirement of fast check out time for transit payments and it was later in January 2022 extended to retail payments. The possibility of interoperability for contactless transit card payments in offline mode shall be explored to facilitate seamless travel with a single payment instrument usable across different transit operators
Leverage ODR System for Fraud Monitoring and Reporting
On the 18th of February 2021, the RBI issued a Master Direction on Digital Payment Security Controls, which mandates Regulated Entities to provide a mechanism which allows consumers to mark a transaction as fraudulent, after which the REs should instantly report the same to the corresponding beneficiary. RBI recognised that this is requires a central agency, and until such a feature is built, the possibility of using an ODR system will be deliberated upon.
Further, enhancement have been proposed to the existing Central Payments Fraud Information Registry (CPFIR). RBI has proposed that it is essential to engage with the industry and Government to examine the feasibility of integrating CPFIR with other fraud reporting solutions to ensure that a single comprehensive platform is made available for real-time reporting and resolution of payment frauds in the country.
Explore local processing of payment transactions
While guidelines for domestic storage of payments data are presently in place, banks and PSOs are allowed to process payment transactions abroad subject to certain conditions. RBI will explore the options to ring-fence domestic payment systems, including the need to mandate domestic processing of payment transactions
Provide Payee Name Look-Up for Fund Transfers
The RBI is looking at the possibility of looking into providing a service where the beneficiary’s details are displayed in RTGS, NEFT, IMPS transfers so that the payment does not go to an unintended beneficiary. Presently, UPI has a facility for the payer to check and confirm the name of the account holder being paid before making the payment.
Inclusion Goalpost – Key Initiatives
Enable Geo-Tagging of Digital Payment Infrastructure and Transactions
The RBI intends on introducing a framework for geotagging of payment systems and has already taken steps in the form of collection of location information, in order to improve monitoring of fraud and engage in dispute resolution. Keeping this in mind, RBI shall examine the desirability and feasibility of geo-tagging of payment transactions keeping in view the customer privacy concerns.
Revisit Guidelines for PPIs Including Closed System PPIs
Considering the evolution of prepaid payment instruments, the RBI also is looking to revisit its PPI guidelines, and is also looking to tighten regulations on intermediaries. RBI is planning to continue to develop a conducive framework for long term growth of PPIs with enhanced security of transactions. A comprehensive review of the different types of PPIs including timeline for full-KYC PPIs, definition of closed system PPIs, and the related aspects, has also been proposed.
Attempt Regulation of Bigtechs And Fintechs In Payments Space
The Reserve Bank has also embarked on publishing a discussion paper for the purposes regulating Bigtechs and Fintech companies considering their increasingly dominant role in payments ecosystem.
Upscale Customer Outreach and Awareness Activities
RBI is also actively taking measures to enhance customer awareness through its electronic-Banking Awareness and Training (eBAAT) programmes and organising campaigns on safe use of digital payment modes through various media channels.
The regulatory authority is also exploring the possibility to migrate from the current architecture of cheque processing to ‘One Nation, One Grid’, which would be more cost-effective. This is expected to reduce the settlement risk, provide larger time window for the banks to present the instruments and enable faster realisation of funds for the customers.
Innovation Goalpost – Key Initiatives
The RBI is looking to develop a regulatory framework for an IoT (Internet of Things) based payment systems which will address data security, authentications, identity validation etc. Furthermore, Payment System Operators across the world have embarked on a journey to implement ISO 20022. RBI has acknowledged the significant benefits of the standard and is looking to migrate all RBI Operated Payment System Messages to ISO 20022.
Given the astronomical growth of UPI transactions, the RBI is deliberating upon the feasibility of linking UPI accounts to credit cards. Furthermore, in the wake of success of the RBI’s first global hackathon – “HARBINGER 2021 – Innovation for Transformation”, efforts are being made towards organising national / international payment hackathons, competitions and conferences to foster innovation and exchange of ideas.
Institutionalisation – Key Initiatives
Considering the emerging requirements of the highly dynamic and fast evolving payment ecosystem, both domestic and cross-border, Reserve Bank intends to comprehensively review the PSS Act and the corresponding Regulations. It also intends to institute a Payments Advisory Council to assist the Board of Payment Settlement Systems. Given India’s presidency in the G20 summit of 2023, special emphasis is placed by the RBI in participation in international standard setting bodies.
Internationalisation – Key Initiatives
The RBI has also stressed on the use of UPI, NEFT, RTGS and CPS in other jurisdictions to boost trade. Enabling two-factor authentication for international transactions to increase security is also a major initiative that RBI is willing to undertake.
Bring Further Efficiencies In Payment Processing and Settlements on Introduction of CBDCs – Domestic And Cross-Border
Reserve Bank is working towards introduction of Central Bank Digital Currency (CBDC) in India. Various use cases shall be studied and explored to bring in further efficiencies in domestic and cross border payment processing and settlement using CBDCs.