Financial inclusion: PCI submits recommendations to RBI to boost digital payments
The Council has made several medium to long-term recommendations to accelerate the growth of India's digital payments ecosystem.
The Payments Council of India (PCI) today made a presentation to the RBI Committee on Deepening of Digital Payments (CDDP) headed by Nandan Nilekani at their office in Mumbai. A representative body of over 100 members of various regulated industry players in the payments and settlements systems, PCI made several medium to long-term recommendations to accelerate the growth of the digital payments ecosystem.
The recommendations included offering seamless access to payments and settlements infrastructure (RTGS), formation of a KYC bureau, promoting economic viability through tax incentives and exemptions, stimulating competition and offering customer choice while safeguarding transactional security and providing a level playing field to new entrants.
Considering cash as the most competitive and attractive payment option, the Council suggested all the digital platforms, especially Prepaid Payment Instruments (PPIs), should be allowed to seamlessly issue and allow payments and remittance transactions. This is for transactions below Rs 50,000 with minimum KYC (mobile verified), which will enhance parity between cash and digital transactions.
PCI has suggested seamless access to all payment entities, and interoperability to PPIs be extended to foreign merchants and foreign inward remittances.
Other key suggestions made were:
- Allow cash out from PPIs through ATMs and agent networks for domestic remittances of the unbanked population.
- Leverage Electronic Benefit Transfer (EBT) and Direct Benefit Transfer (DBT) processing through PPIs as an efficient and economical solution.
- Conversion of all PPIs to full KYC accounts within 12 months from issuance not to be time bound but based on the value and additional features availed by the customers.
It said that non-bank merchant acquirers need to take direct membership with card networks to acquire merchants under their own BIN. Since settlements are an important function, PCI recommended seamless access for non-bank entities to key payment systems like RTGS and NEFT.
Digital lenders to issue credit cards
PCI believes credit card is one of the most critical instruments for the growth of digital payments in India. While approximately 40 million credit cards have been issued so far, the credit bureau hosts 400 million consumer records. This clearly presents an opportunity and the council suggested that NBFCs be allowed to issue credit cards (physical or digital) to tap this market base.
Naveen Surya, Chairman Emeritus of PCI, said,
“The monthly retail payments are aggregated at $275 billion. We are eyeing for $500 billion in the next two years. However, cash still reigns supreme and we need to build a robust digital payments ecosystem besides enhancing customer faith. We are confident that Mr Nilekani, who has played a critical role in building India’s digital story, will help us transform the sector preparing it for the next phase of growth.”
A digital payments KYC Bureau
PCI's Chairman Vishwas Patel suggested a KYC bureau owing to technological challenges in the central KYC registry system (cKYC). He urgently recommended access to eKYC and an interoperable KYC infrastructure to improve customer acquisition cost across payment services besides avoiding cost duplication.”
Vishwas also stated,
“Government support in form of GST tax exemption in services like Domestic Remittance and Import duty on PoS is key to drive investment and penetration in the middle and bottom of the customer pyramid.”
The council strongly recommended offering end customers the choice of deciding KYC levels for transactions based on frequency, convenience and risk appetite.
Allowing players to cross-sell financial products
PCI recommended the capital and net owned funds (NoF) should be proportionate to business as it is critical from a compliance cost perspective. Besides, they also suggested payment service providers (PSPs) be allowed to seamlessly cross-sell third-party financial products like credit, insurance (medical/accident) to sustain while offering convenience to customers.
According to Loney Antony, Co-Chair, PCI and Managing Director, Hitachi Payment Services,
“All viable and profitable payment initiatives should be fully opened up to the market on a continuous basis to drive competition and innovation via ‘on tap licensing policy' rather than a onetime 'window' approach. Besides all payment entities should have the option to move up or down the value chain provided financial net worth criterion is being met with."
He added that in the absence of a Regulatory Sandbox, an appropriate framework should run continuous pilots on new ideas and concepts under the industry and regulator’s supervision to foster innovation.
PCI has also proposed an independent security standard or certification to establish online payment systems as ‘Safe to Pay’ based on fulfilment of the safety and security requirements. This will give customers the trust to transact online in a safe and secure manner besides a framework for sharing of fraud related data (negative list of individuals) by PSPs to an independent body for better vigilance and controls.
It also recommended that the board of payment and settlements system be strengthened with a full-time independent payment expert.