DIGITAL PAYMENTS: Major policy initiatives have been taken by RBI

• NEFT system – Settlement at half-hourly intervals instead of hourly from 8:00 am to 7:00 pm on all working days.
• Master Directions on Prepaid Payment Instruments (PPIs):
  • RBI had issued guidelines for issuance and operations of prepaid payment instruments (PPIs) in 2009 in order to foster an orderly development of the PPI ecosystem.
  • Based on past experience, Master Directions on the subject was placed in the public domain for comments on March 20, 2017 and decided to rationalize the operational guidelines to encourage competition and innovation, and strengthening safety and security of operations, besides improving customer grievance redressal mechanisms.
  • Revised framework will pave the way for bringing inter-operability amongst KYC compliant PPIs.
• Rationalisation of Merchant Discount Rate (MDR):
  • MDR applicable on debit card transactions has been rationalized based on the category of merchants with effect from July 2011.
    • Small Merchants (with turnover up to Rs. 20 lakh last financial year), MDR Not exceeding 0.40% (MDR cap of rupees Rs. 200 per transaction).
    • Other Merchants (with turnover more than Rs. 20 lakh last financial year), MDR Not exceeding 0.90% (MDR cap of rupees Rs. 1000 per transaction).
    • The revised MDR aims at achieving the twin objectives of increased usage of debit cards and ensuring sustainability of the business for the entities involved.
  • Storage of Payment System Data:With considerable growth in the payment ecosystem and also highly technological dependency, it necessitates the adoption of safety and security measures.
    • All system providers shall ensure that the entire data relating to payment systems operated by them are stored in a system only in India.
    • System providers shall submit the System Audit Report (SAR) conducted by CERT-IN (The Indian Computer Emergency Response Team) to RBI.

Emerging Global Trends and Challenges

As per the report of Capgemini, a global leader in consulting, technology services and digital transformation, on ‘Trends in Payments 2018’, the Top 5 trends in Digital Payments across the world are as follows:

• Alternate payment channels such as contactless payments fulfill customer demands for convenience and speed and could soon become main-stream.
  • Contactless payments enable consumers to make everyday purchases quickly and safely especially for low-value transactions. (Contactless payment is a secure method for consumers to purchase products or services via debit, credit or smartcards (also known as chip cards). To make a contactless payment, a person simply needs to tap their card near a point-of-sale terminal & do not require a signature or a PIN, transactions sizes on cards are limited).
  • Augmented Reality (AR)-integrated payment gateway delivers a superior customer experience. Mastercard now allows customers to log in to the mobile payment app Masterpass by scanning their iris (one of the safest means of facial recognition).
    
    
    

    Challenges unique to India The costs associated with online payment through RTGS and NEFT systems have also created a hindrance. These methods are not only expensive but also time-consuming at a time when there are a number of technologies available that offer real-time fund transfer.   India is far from creating a robust digital payment ecosystem. There are several structural challenges that are hindering the growth of digital payments in the country and the biggest among them is the cyber-security. Digital inequality in India is also a challenge for deeper penetration of digital payments.

• Banks and Fin-Tech (Financial Technology) companies explore distributed ledger technology to transform cross-border payments.
  • The current cross-border payments model lacks an international clearinghouse and relies on correspondent banks, which causes inefficiency, slow speed, and high cost. As a result, corporate customers are demanding transformation.
  • A distributed ledger-based cross-border payments model is expected to result in improved efficiency, enhanced security, and lower costs.
• Instant payments ‘new normal’ for corporate treasurers, industry: Banks are leveraging instant payments platform to connect with third parties to deliver better digital customer experience and provide innovative products and services to both retail and corporate customers.
• As global cyber-attacks rise, regulators focus on data-privacy law compliance:
  • Based on estimates, cyber-attacks cost the global economy 1% of annual GDP.
  • The cyber insurance industry grew 35% in 2016 to $1.35 billion in terms of direct written premium, which shows that corporates are looking to protect themselves from liabilities related to cyber-security laws.
  • Lack of harmonization in cyber-security laws in different countries is a challenge for multinational companies operating across the globe.
  • Regulators across the world are bringing in new cyber-security regulations and standards which could impose heavy fines, injunctions, audits, even criminal liability on firms for a data breach.
• Payments Infrastructure rationalization is likely through mergers and acquisitions to expand the reach of the payments firms, increase their value proposition to meet changing customer expectations, and create customized solutions.