The Reserve Bank of India (RBI) is in the spotlight following its recent announcement regarding the establishment of a Rs. 500-crore Payments Infrastructure Development Fund (PIDF). This action is part of an ongoing initiative to boost the Point of Sale (PoS) adoption rates in regions that currently lack substantial physical and digital infrastructure. These areas include the tier-3 to tier-6 centres and north-eastern states where the vision document on payment and settlement systems for India 2019-2021 emphasized improvement.
Aims of the PIDF
The primary aim of the PIDF is to expand card acceptance infrastructure across small towns and cities, thereby encouraging digital payments. This aligns with the RBI’s proposed Acceptance Development Fund, another initiative aimed at promoting wider deployment of PoS infrastructure.
Funding and Corpus Allocation
The PIDF possesses a corpus of Rs. 500 crore, with the RBI initially contributing half the amount — Rs. 250 crore. The remainder of the funds is intended to be sourced from card-issuing banks and card networks operating within the country.
Recurring Contributions and Shortfall Management
To cover operational expenses, the PIDF will receive regular contributions from card-issuing banks and card networks. Should there be any yearly shortfalls, the RBI has also pledged to contribute the necessary amounts to fill the gap.
Governance and Administration
While an advisory council will govern the fund, its management and administration will be undertaken by the RBI. This setup ensures a balance between strategic oversight and practical implementation.
The Need for PIDF
The PIDF’s inception addresses a critical issue facing the Indian payments ecosystem: the disproportionate concentration of PoS terminals within tier 1 and 2 cities. This disparity primarily stems from high merchant acquisition and terminalisation costs, as well as the challenge of onboarding and training merchants in smaller towns and cities to use digital payment options. The term ‘merchant onboarding’ refers to the process of integrating a new merchant into a payment gateway system.
Expected Benefits of PIDF
By promoting digital payments through the expansion of PoS infrastructure, the PIDF is expected to catalyze a shift from cash to digital transactions across India. This would not only enhance the ease and convenience of financial transactions for Indian citizens but also contribute to a decrease in the demand for physical cash over time.
Given the strong commitment from RBI and the clear strategy in place, the PIDF could be a significant catalyst towards achieving a more extensive digital payment network in India, especially in the less-developed regions.