Steps taken by RBI to boost Digital payments in India | challenges and action to counter | UPSC | Finance

Recent initiatives of RBI to boost digital payments Upsc

online payments

For high-value checks, a positive pay method is used.

The Reserve Bank of India announced a raft of initiatives to boost digital payments on Thursday, including a system for making offline payments with mobile devices and cards, as well as a Positive Pay method to avoid high-value check fraud.

"Under this mechanism, cheques will be processed for payment by the drawee bank based on information passed on by its customer at the time of issuance of cheque," the RBI said in its Statement on Developmental and Regulatory Policies, adding that the Positive Pay mechanism will cover approximately 20% and 80% of total cheques issued in the country, respectively, by volume and value.

The method will apply to all checks with a value of 50,000 or more.

It would improve customer safety in cheque payments and prevent cases of fraud caused by tampering with cheque leaves, according to the RBI.

RBI 

Digital payments that can be made offline

In the meanwhile, the RBI proposed allowing a trial scheme for small value payments in off-line mode with built-in provisions for defending users' interests and liability protection, noting that there has been significant increase in digital payments but that Internet connectivity remains an issue.

The experimental programme will run until March 31, 2021. Banks and non-banks alike can join by using cards, wallets, mobile devices, or any other available channel. Payments can be made without the need of an additional factor of authentication, up to a maximum of 200 per transaction.

The maximum number of offline transactions on an instrument will be 2,000, and payment operators will be required to offer clients real-time alerts.

On the basis of the pilot's findings, full directions for the scheme's implementation will be released.

"Offering off-line payment options through cards, wallets, and mobile devices is projected to increase the acceptance of digital payments," it said, adding that it has been encouraging companies to develop offline payment solutions.

ODR (On-Demand Response) systems

Payment System Operators (PSOs) will be required to adopt Online Dispute Resolution (ODR) Systems in stages, according to the RBI.

"To deal with them (disputes and grievances) in a fast and effective manner, recourse to technology-driven redressal processes that are rule-based, transparent, and involve minimal (or no) manual interaction is necessary," it stated.

Initially, authorised PSOs would be needed to deploy ODR systems in their respective payment systems for unsuccessful transactions. According to the RBI, ODR arrangements will be expanded to other types of disputes and grievances based on the lessons learned.

challenges for online transaction

Hub for innovation

The RBI also announced intentions to establish an Innovation Hub in the country, with the goal of promoting financial sector innovation by utilising technology and creating an environment that facilitates and fosters innovation.

"The Innovation Hub will act as a centre for ideation and incubation of new capabilities that can be leveraged to create innovative and viable financial products and/or services to help achieve the wider objectives of deepening financial inclusion, efficient banking services, business continuity in times of emergency, and strengthening consumer protection," according to the statement.

Six submissions had previously been accepted by the RBI under the Regulatory Sandbox initiative.

The Reserve Bank of India recently issued statements aimed at encouraging non-bank financial entities such as mobile wallets and payments banks. The RBI has chosen to make online payments via NEFT, RTGS, mobile wallets, UPI, and other digital channels more simple, in addition to keeping key policy rates intact.

These initiatives attempt to provide non-bank payment operators and banks with equitable opportunity while also minimising settlement risks by expanding the ecosystem. The following are some of the most important announcements made at the RBI Monetary Policy Meeting on April 7, 2021:

1.Payments bank deposit increased to 2 lakh: The RBI has increased the maximum end-of-day balance for payment banks from Rs 1 lakh to Rs 2 lakh in order to meet the growing needs of clients and to strengthen digital payments banks.

2.Interoperability for full-KYC prepaid instruments (PPIs) and all payment acceptance infrastructure: The Reserve Bank of India has recommended making interoperability necessary for full-KYC prepaid instruments (PPIs) and all payment acceptance infrastructure. This move toward enforced interoperability will improve customer relations by allowing users to transfer funds from one mobile wallet to another.

3.Cash withdrawals from full-KYC PPIs issued by non-banks: The RBI has proposed allowing cash withdrawals from full-KYC PPIs issued by non-bank PPI issuers in another step to bring uniformity. Cash withdrawals are now limited to full-KYC Prepaid Payment Instruments (PPIs) issued by banks. The Reserve Bank of India has advocated allowing cash withdrawals for full-KYC PPIs issued by non-bank PPI issuers in order to promote consistency to users. Users of PPIs such as wallet and prepaid cards provided by non-banks will be allowed to withdraw cash in the future.

4.Non-bank payment operators can now utilise RTGS and NEFT: The RBI said that non-banks, such as FinTechs and payment banks, will soon be able to offer the RTGS and NEFT facility in an effort to encourage online payments. Until today, banks were the only ones who could provide this service. PPI issuers, card networks, White label ATM providers, and Reserve Bank-regulated Trade Receivables Discounting System (TReDS) platforms are all eligible for direct membership in CPSs. This will help the Indian economy go cashless by promoting branchless banking.