Concerned over “the concentration risk” and monopoly in the retail payments market, the Reserve Bank of India (RBI) has said it would encourage more players to participate in and promote pan-India payment platforms and sought views from various stakeholders.
Payment Systems in India have grown in a manner which is characterised by a few operators while there is a wide array of payment systems, the RBI said. “This has given rise to certain questions which range largely around concerns of concentration, need for competition and the resultant impact on economic efficiency and financial stability,” the RBI said in a Policy Paper on Authorisation of New Retail Payment Systems.
The central bank, which opposed the government’s plan for an independent regulator for payment systems last year, has now proposed diversification across multiple operators as against multiple and varied retail payment systems being concentrated in a single entity. It also sought discussion on multiple systems with similar product features offered by different operators as against payment systems managed by a single operator — Unified Payments Interface (UPI), Immediate Payment Service (IMPS), Aadhaar Enabled Payment System (AePS), Aadhaar Payment Bridge System (APBS), Bharat Bill Payment System (BBPS), Instant Money Transfer (IMT).
The RBI is also for a review of the criteria for licensing, to facilitate innovation and competition and to broadbase potential applicants. The availability of a window for licensing operators of a payment system on-tap is also being proposed.
As at the end of 2018, there were 89 authorised non-bank payment system operators (PSOs).
The RBI said payment and settlement systems are essential for smooth functioning of financial markets, individual remittances, financial inclusion and growth of the economy as a whole. Therefore, central banks have a keen interest in their safe and efficient functioning. “The RBI, as the regulator of payment and settlement systems in the country, sets the necessary regulatory framework, generally through a consultative process, to ensure that different types of payment systems operate in a safe, secure and efficient manner to meet the needs of varied segments of society,” it said.
The RBI authorises payment systems in terms of powers vested with it by the Payment and Settlement Systems Act, 2007 (PSS Act), it said.
For many years in India, banks have been the traditional gateway to extend payment systems. Over a period of time, given the demand for varied payment services and in keeping with the fast pace of technological changes, non-bank entities have also been permitted access to the payment space, the RBI said.
“Reserve Bank’s regulatory framework has recognised and facilitated the increasing contribution of non-banks in the payments domain even as some element of distinction continues to be maintained to reflect their differential role and activities vis-à-vis banks,” it said.
In October last year, the RBI went public with its resistance to the Centre’s proposal to set up an independent Payment Regulatory Board (PRB) which will oversee all payment systems in the country stating that the proposed body “must remain with the Reserve Bank”
and headed by the RBI Governor. Coming out strongly against the Inter-Ministerial Committee’s proposal to take PRB out of the RBI’s purview, the RBI said there has been no evidence of any inefficiency in payment systems of India.
“The digital payments have made good and steady progress. India is gaining international recognition as a leader in payment systems. Given this, there need not be any change in a well-functioning system,” the RBI said in a dissent note to the proposal for an independent PRB outlined in the draft Payment and Settlement System Bill, 2018.
“Reserve Bank has been issuing guidelines for various payment systems and grants authorisation to non-banks for setting up and operating payment systems. It may be noted that licensed banks also need to obtain specific permission from Reserve Bank for setting up and operating a payment system,” the RBI said in the latest policy paper.
‘Characterised by a few operators’
-Payment Systems in India have grown in a manner which is characterised by a few operators while there is a wide array of payment systems, the RBI said.
-This has given rise to certain questions which range largely around concerns of concentration, need for competition … the RBI said.