Notes on the RBI Payment System Vision Document (2012-15)

Unlike developed countries, the payment systems industry in India is in its relative infancy. Considering the immense unlocked potential in the country evidenced by the sheer size of the population and the benefits that electronic payments can bring to the entire economy, the RBI has recognized the need to evolve a “safe, efficient, interoperable, authorized, accessible, inclusive and compliant ( with international standards) ”  payment system. In order to streamline the development efforts and to provide a clear policy stance the central bank releases a vision document once every four years with this being the second edition.

Four Key aims stand out

1.       Standardize and improve efficiency of the existing payment infrastructure and build capacity for the future i.e.  Evolve from a “fit for current purpose” to “fit for future use” infrastructure.

2.       Recognize and manage potential risks in the payment systems in compliance with international standards.

3.       Incentivize innovation and efforts to move towards a “less-cash” society.

4.       Promote access and inclusion. Improve payment system visibility and literacy.

STANDARDIZATION AND EFFICIENCY IMPROVEMENT

1.       Mandate CTS implementation.

2.       Improve functioning of ECS. Implement an electronic GIRO system.

3.       Develop a policy framework to incentivize arrival of new payment system operators.

4.       Review guidelines for prepaid electronic instruments.

5.       Implement white label ATMs. Consider white label PoS.

6.       Standardize payment instruments, message formats and payment instructions ( Consider ISO20022)

7.       Monitor progress of use of SWIFT as an alternate network.

8.       Strive towards interoperability and portability in all payment systems.

9.       Augment the existing hardware and network resources for payment systems.

10.   Focus on human resource capacity building with respect to the payment systems industry.

11.   Engage with stakeholders for building an integrated payment infrastructure.

RISK MANAGEMENT

1.       Ensure compliance of FMIs to new FMI standards. Emphasize importance of setting up risk management frameworks and perform stress testing and back testing on a periodic basis.

2.       Promote funds settlement of all payment systems beyond a certain threshold through RBI’s books.

3.       Adopt new technology and standards to mitigate concentration risk.

4.       Focus on quasi payment systems and their risk management processes

5.       Focus attention on the role of non-banks and the services that they offer and their risk management frameworks.

6.       Adoption of technology, authentication protocols, security features for safety and security of payment products and channels and start dialogue with stakeholders viz. security, IT, legal experts, legal bodies and government.

7.       Draw up exit criteria for authorized payment system operators including guidelines for managing orderly winding down of operations.

8.       Issue master circulars providing a consolidated view of various guidelines and instructions issued.

9.       Start dialogue about a direct regulatory framework of payment systems.

10.   Focus attention on bringing non-banks and the services they offer including access to payment systems and bring them under the existing regulatory framework.

11.   Prepare self-assessment template for retail payments based on the new PFMI.

12.   Put in place frameworks for Financial Market Infrastructures.

INCENTIVIZE INNOVATION

1.       Encourage further adoption of mobile banking and NFC in payment systems by achieving necessary collaboration between the banking sector and the mobile network operators through a centralized platform.

2.       Promote mobile PoS to increase acceptance across a large base of retailers across the country.

3.       Draw up a policy framework establishing roles and responsibilities of banks and customers in electronic transactions to minimize fraud, fix responsibilities and zero liability protection to increase customer confidence in all electronic transactions.

4.       Examine the feasibility of using Aadhar as authentication protocol for all financial transactions.

5.       Enhance availability and acceptability of alternate payment instruments in lieu of cash.

6.       Promote convergence of all form factors towards mobile making it a single instrument for carrying out financial transactions.

PROMOTE ACCESS AND INCLUSION

1.       Address the issue of identification documents especially in a country where a large section of the population is unbanked ( related to examining feasibility of using Aadhar)

2.       Revisit current KYV norms for various prepaid proudtcs and explore the feasibility of a single, rationalized norm for semi closed prepaid payment instruments.

3.       Fulfill G-20 initiatives on financial inclusion and government payments.

4.       Review the pricing structure in card payments.

5.       Dialogue with stakeholders including the Government for making direct cost of transacting in electronic payments as attractive as transacting in cash.

6.       Promote financial literacy and awareness about payment systems through eBAT ( Electronic Banking Awareness Training) initiative.