The Reserve Bank of India (RBI) has published a statement titled ‘Payment and Settlement Systems in India: Vision 2019–2021’. This document details the steps that need to be taken to facilitate innovation, cybersecurity, financial inclusion, customer protection, and competition. The objective of the Payment Systems Vision 2021 is to transition towards a primarily digital and less cash-dependent society through the principles of competition, cost-effectiveness, convenience, and confidence.
Self-Regulatory Organization for Digital Payments
RBI acknowledges the need for a self-regulatory organization to oversee the digital payment sector. An organization of this nature would function as a bidirectional communication channel between the stakeholders and the regulator. Its duties would include setting minimum benchmarks, establishing standards, monitoring compliance with these standards, and reining in non-conforming behaviour.
Potential for Growth in Digital Transactions
RBI estimates that the number of digital transactions will multiply by more than four times, rocketing from 20.69 billion in December 2018 to 87.07 billion in December 2021. Moreover, the proportion of digital payment transaction turnover to gross domestic product (at current market prices) could rise to 10.37 per cent in 2019, 12.29 per cent in 2020, and 14.80 per cent in 2021. Furthermore, individual retail electronic payment systems are anticipated to grow both in terms of transaction numbers and availability.
Payment systems such as the Unified Payments Interface (Immediate Payment Service) are expected to record an average annualized growth rate exceeding 100 per cent. Likewise, the National Electronic Funds Transfer may grow at a rate of about 40 per cent over the vision period.
| Year | Anticipated Digital Payment Transaction Turnover(% of GDP) |
|---|---|
| 2019 | 10.37% |
| 2020 | 12.29% |
| 2021 | 14.80% |
Steps to Improve Infrastructure Penetration
RBI is planning measures to heighten the penetration of acceptance infrastructure in India. The goal is to expand the infrastructure by at least six times within the next three years. To streamline regulation, RBI will collaborate with other sector-specific regulators like Securities and Exchange Board of India, Insurance Regulatory and Development Authority, Telecom Regulatory Authority of India, etc. This cooperative approach will smooth out regulatory bumps, enhancing the comfort level for system operators and customers. There are also plans to consider the implementation of e-mandates/standing instructions for retail payment systems, subject to customer protection and adequate safeguards like authenticating payment instrument registration, mandating transaction limits, segments, etc.
Cash-Lite Economy and Digital Payment Systems
A cash-lite economy is one where the volume of physical cash in circulation is reduced as electronic payment channels are preferred. This shift not only reduces the cost of cash production and transportation but also encourages the spending of money without it being physically carried from person to person.
The Unified Payments Interface (UPI) combines multiple bank accounts into a single mobile application, bringing together various banking features, seamless fund routing & merchant payments under one umbrella. It also accommodates Peer-to-Peer collection requests that can be scheduled and paid according to individual requirements and convenience.
National Electronic Funds Transfer (NEFT) is an electronic funds transfer system maintained by the RBI. Started in November 2005, this setup enables bank customers in India to transfer funds between any two NEFT-enabled bank accounts on a one-to-one basis via electronic messages. Unlike Real-time gross settlement, NEFT fund transfers do not happen instantly but in half-hourly batches with 23 settlements taking place between 8:00 AM and 7:00 PM on weekdays and the 1st, 3rd and 5th Saturday of the calendar month.
