RBI unveils guidelines to boost digital payments in lower-tier cities

The Reserve Bank of India (RBI) has unveiled a Rs 345 crore Payments Infrastructure Development Fund, aimed at boosting digital payments in Tier III to VI centres — a much-needed shot in the arm that will vastly improve the rural financial infrastructure and give more people access to banking services.

The fund — which will be operational for three years, effective January 1, 2021 — will be used to give subsidies to banks and non-banks that will help improve the rural financial infrastructure, the RBI said. Northeastern states, especially, will be at the centre of this infrastructure deployment, the banking authority added.

What will be funded under the scheme

• Payments acceptance devices such as point-of-sale terminals (PoS), mobile PoS, GPRS, QR code-based payments.
• Devices and infrastructure that supports card payments such as swipe machines and PoS devices.

"As the cost structure of acceptance devices vary, subsidy amounts shall accordingly differ by the type of payment acceptance device deployed. A subsidy of 30 percent to 50 percent of the cost for physical PoS, and 50 percent to 75 percent subsidy for Digital PoS shall be offered," the central bank said in a statement.

The subsidy will be granted to banks and non-banks offering payments via these modes on a half-yearly basis, and only after they achieve the performance parameters laid out by the RBI.

The implementation of the scheme will be monitored by the RBI, the credit/debit card networks, the Indian Banks' Association, and the Payments Council of India, the RBI said.

Contribution to the fund

About Rs 250 crore of the fund's Rs 345 crore corpus was contributed by the RBI, while the remaining Rs 95 crore was contributed by authorised card networks.

The fund will continue to receive annual contributions from transactions processed by card networks such as RuPay, Mastercard, and Visa, as well as from card-issuing banks. A nominal contribution from new debit and credit card issues will also be added to the fund, which, cumulatively, is expected to net the PIDF around Rs 100 crore.

Big boost for India's fintechs

The PIDF is a big boost for Indian fintech companies and will encourage them to provide better services in the country's rural areas. It also opens up a whole new scarcely-tapped market for players.

"The introduction of RBI’s PIDF scheme will provide a big boost to financial advancement in India’s semi-urban and rural economy, especially at a time when this segment needs immediate support to jump back into the economy. Accessibility and availability of financial services are major challenges that hamper the financial inclusion of rural and underserved segment," said Dilip Modi, Founder, Spice Money.

Deploying a robust digital payments infrastructure will not only catalyse consumer spending in rural areas but also help support rural entrepreneurs as banks and non-banks participating can expand their financial offerings.

 “The PIDF guidelines unveiled by RBI is a landmark move for the industry. This move removes the shackles that have been holding the industry back in Tier 3+ towns and villages. We are highly appreciative of the collaborative approach of the RBI in building the right framework that will usher in the next big wave of digitisation," said Manish Patel, Founder and CEO, Mswipe.

India has already upped the digital payments bar for the world with the launch of UPI; the PIDF is another move that will help boost the non-urban economy by creating an integrated digital payments network in the country's suburbs and villages.