The Reserve Bank of India (RBI) appointed a committee to review and strengthen the digital payments ecosystem in India. Led by Nandan Nilekani, the committee has come up with a set of recommendations that aim to foster a more robust digital payments landscape. The suggestions offered by the group revolve around enhancing consumer convenience, reducing merchant costs, monitoring progress, mitigating risks, promoting acceptance in underserved areas, and bridging the gap between digital credits and debits.
Ridding Transaction Charges on Government Digital Payments
The committee has recommended the elimination of convenience fees for consumers making digital payments to state-run entities and central departments. This move aims to encourage more people to adopt digital modes of payment, reducing the dependence on physical cash and promoting transparency.
Modifying MDR Pricing Structure
The panel suggests a 15-basis point cut on the interchange rate on card payments, which is traditionally borne by the merchants. A hundred basis points make up one percentage point. By reducing this burden on merchants, the committee expects an increase in digital payment adoption among businesses, enriching the digital payments ecosystem.
Relaxation of Import Duty and GST on POS Machines
To boost the availability of Point of Sale (POS) machines, the report recommends the removal of the existing 18% import duty on these devices for three years. Additionally, there’s a call to reduce the Goods and Services Tax (GST) on digital transactions to incentivise customers to switch to digital payments.
A Watchful Eye on Digital Payment Systems
The committee advocates for the creation of a Digital Financial Inclusion Index to measure progress in different areas using a common scale. Aggregated data, such as blocks and PIN codes, should be made available to all stakeholders on a monthly basis, to ensure corrective measures are taken where needed.
| Recommendation | Justification |
|---|---|
| Removal of transaction charges on government digital payments | To promote transparency and digital adoption |
| 15 bps cut on interchange rate on card payments | To reduce financial burden on merchants and increase digital payment adoption |
| Waiving off 18% import duty on POS machines for three years | To boost availability of POS machines |
| Reduced GST on digital transactions | To incentivise customers to embrace digital payments |
| Creation of Digital Financial Inclusion Index | To monitor progress and take corrective measures |
Securing Digital Transactions and Expanding Reach
The RBI-appointed committee underlined the importance of protecting consumers from fraud and risk. For dispute resolution, it proposed relying on machine-driven, online platforms to process complaints swiftly. To expand the reach of digital payments, they also suggested setting up an Acceptance Development Fund for cultivating new merchants in underserved areas.
Bridging the Digital Credit-Debit Gap
Lastly, the report highlighted the need to reduce the gap between “digital credits” and “digital debits”. This can be achieved by working on the acceptance side of the ecosystem, dismantling high-cost structures like interchange fees. Simultaneously, enhancing financial service offerings will also persuade merchants to accept digital payments. The committee sets a target for the growth of digital payment volumes: a tenfold increase in three years, propelled by a transition from high-value, low-volume, high-cost transactions to the opposite — low-value, high-volume, low-cost transactions.
