Via the Payments Digest, we aim to provide a view on key developments with payments regulations each month. In the last section we also share our internal data on beneficiary bank downtimes for the last month.
Part I: RBI enables offline digital payments
Quick Take: A new framework permits AFA free payments even without internet/ telecom connectivity, encouraging use in rural and semi-urban areas.
In a move to enable rural population with digital payments, RBI has allowed Offline payments, i.e., digital payments happening without internet or telecom connectivity, are now permitted. These are to be low-value, face-to-face transactions, up to a value of Rs.200/-, which can be via any channel like cards, wallets, mobile devices, etc. For increased convenience, AFA requirements like OTPs are relaxed for transactions within this framework. An overall limit of Rs.2000/- has also been imposed on all offline transactions, until the account is replenished. This replenishment will only happen online.
For further protection of customers, their explicit consent is required for enabling offline transactions. For cards, the separate requirement to switch on contactless transaction channels, prescribed in previous notifications, has been relaxed. Transaction alerts via SMS/ email will also be sent, though these will be received after a time lag given the payments are offline.
Key Takeaways
| For Merchants and Consumers | For the Payments Industry |
| ₹200/- may seem an unusually low threshold, but for rural and semi-urban areas this is actually sufficient, given lower transaction values on an average (₹50/- as per news reports). Merchants like kiranas, small retailers and customers in such areas will thus have a viable alternative for making digital payments. Moreover, improper internet/ network will no longer be a barrier to making payments. Neither will feature phones, since innovation here targets these as well. The biggest benefit of the step iis thus for the last-mile penetration of digital payments. For this customer segment, moving from cash to digital payments is an important change, allowing transaction histories to be created for example, which enables further financial services like credit access or deposit services. | Having a clear framework in place will encourage payments players, incumbents and others to create, adopt and deploy solutions, thus providing an opportunity for innovation. Authorised PSOs, PSPs, issuers and acquirers providing solutions need to comply with requirements of the framework. Solutions here include NFC-enabled prepaid cards, NFC-based PoS devices, IVR-based UPI solutions, etc., which are also usable on feature phones. Previously, the RBI had successfully conducted a pilot between September 2020 to June 2021, and 6 entities that successfully exited the first cohort of the RBI sandbox included offline retail payment solutions. |
(Related Read: Offline Digital Payments: Bridging The Urban-Rural Digital Gap)
PART II: The RBI’s new fintech department
Quick Take: Could a new dedicated fintech department within the RBI mean more progressive regulations for the fintech industry?
Regulating fintech presents very new challenges. Take API based banking for instance – this creates completely new banking touch-pounts for customers, allowing any company to become a part of the financial industry. Traditional regulations were often drafted before the era of tech driven disruption arrived. Today, these require reimagining approaches and dealing with blurring lines. The RBI has been taking multiple steps which embrace this innovation and encourage say bank-fintech partnerships or the entry of non-banks in this space. Examples are the Digital Payments Security Controls encouraging opening of APIs, UPI allowing any third party to provide payments-as-a-service, allowing non-banks direct CPS membership, introducing licensing mechanisms like PPIs and payments banks allowing relatively lower thresholds for entry than for banks, etc.
Nevertheless, news of the RBI’s dedicated new Fintech Department is welcome, promising further change and perhaps still more prgogressive regulation. The RBI already had a fintech division earlier, in 2018 this was a part of the Department of Regulation, and in 2020 was transferred to the Department of Payment and Settlement Systems (DPSS). Now the new Fintech Department will take up the following:
- Act as a central RBI PoC for all fintech activities
- Promote innovation in the sector
- Identify and address challenges and opportunities
- Provide framework for further research on points needing policy interventions
- Handle matters relating to the facilitating constructive innovation and incubations
- Handle matter relating to inter-regulatory coordination and international coordination
The recent RBI paper on Digital Lending Report, apart from its focus on digital lending applications also discussed the general fintech-techfin phenomenon, neobanks, ‘OTT’ services in the financial sector, etc. The focus remains the same as for the DLAs, of consumer protection, but the suggestions indicate where the regulatory focus lies and possibly the first steps that will be taken by the new department.
Some of these include:
- Comprehensive regulations for fintechs &techfins in the medium-term
- Guidance for bank-fintech partnerships
- Agency Financial Service Regulations’ for customer-facing outsourcing activities of REs
- A consumer protection focus via National Financial Consumer Protection Regulations
- A National Financial Crime Record Bureau to supplement onboarding diligence
- An SRO for fintechs, to name a few.
(Related Read: Payments Digest by Cashfree- November 2021- Regulating Digital Lending & Neobanks)
Quick Take: As per the NPCI, all functionalities, interfaces payment mechanisms, etc. built on UPI by any third party must be equally accessible to the whole ecosystem.
UPI, since its inception, has seen multiple new features added on over the years which promote innovation and new use-cases, including P2M collections, AutoPay, one-time mandates, and so on. Steps like enabling IPO payments, raising transaction limits, etc. are also equally important and today, UPI is seeing transaction volumes of 2.7 billion (P2P) and 1.8 billion (P2M).
As a payments system, UPI essentially unbundles bank-based fund transfers from banks and allows third parties to leverage these and enable payments services. Interoperability, accessibility and co-creation are some of the key tenets of the system. The term ‘UPI Features’ can be thought of as any activity, functionality, payment mode, etc. which is enabled on or via the basic UPI-based transfer. The NPCI Guidelines list the following UPI Features, and additionally some upcoming UPI Features, some of which are currently in different phases of development:
Current UPI (1.0 & 2.0) Features
| Functionalities | Pay, Collect, Intent, P2P, P2M, AutoPay, IPO, etc. |
| Interfaces | Smartphone, Feature phone, ATM, Embedded Devices, Voice, IVR, PoS |
| Payment mechanisms | QR code, UPI ID, UPI Number, A/c number & IFSC |
| Protocol/communication channel | Internet, USSD, NFC, Bluetooth, Sound-based/Tone-based, Ultrasonic |
Upcoming UPI (3.0) Features
| IoT & Embedded Payments | Connected cards, eSIM, etc |
| Voice-based usage | IVRS, Missed call, Virtual assistants |
| App-based usage | Software tool kit |
| Technology enhancements for payments authentication | Biometric authentication, Face authentication, etc |
Here, the Guidelines set out that any innovation on UPI must be equally accessible to all in the UPI ecosystem, and must be interoperable. Any new process/ technology/ methodology, etc. built by PSPs/ associated third parties to enhance UPI Features should be available to all providers/ participants. Proprietary restrictions must give way to wide-scale access and availability to all end-users. As laid out earlier in previous circulars, non-interoperable tokens, payment ID, proprietary QR codes, etc. will not be permitted.
Others:
- Access to credit data to fintech companies: The RBI recently opened access to credit data from credit bureaus to fintech companies. This is an important step in the age of digital lending and alternative credit scoring, adding more credibility and reliability via access to official credit scores. This can lead to increased penetration in B2B, B2C and P2P marketplaces, swift turnaround of loan requests and quick disbursal with reduced intervention of banking partners. Access will be subject criteria, such as being an Indian company with min. net worth Rs. 2 crore and min. 3 years experience running the business/activity of ‘processing information for the support/benefit of a credit institution’ (the MoA must cover this). This was first introduced last November, via an amendment to the Credit Information Companies Regulations, 2006.
- Airtel Payments Bank added to Second Schedule of RBI Act, 1934: After PayTM and Fino Payments Banks, now Airtel Payments Bank has been added to the list of scheduled banks under Schedule II of RBI Act, 1934. Scheduled banks enjoy benefits like allowing eligibility to apply for debt from the RBI at the bank rate, acquire membership of the clearing house, participate in tenders, RFPs, etc. for central/ state government business, etc.
- RBI releases Digital Payments Index for September 2021: The Digital Payments Index, which captures the extent of digitisation based on broad parameters and issued half-yearly, is out. For September 2021 this is 304.06, as against 270.59 for March 2021, and the base of 100 in March 2018.
(Related Read: Payments Digest by Cashfree: Jan 2021)
- Bharat BillPay launches Unified Presentment Management System (UPMS): NBBL, the wholly-owned subsidiary of NPCI, launched a UPMS functionality allowing customers to enable standing instructions from any channel or any mode on their recurring bill payments. The step aims to enable BBPOUs to extend this facility to their customers/corporate clients with minimal effort and through the centralized infra and application support of BBPCU.
- RBI releases Annual Report of Ombudsman Schemes, 2021-22: The RBI also released its Annual Report on the Ombudsman Schemes, soon after the launch of the Integrated Ombudsman scheme in November. The report notes that between July 1, 2020 to March 31, 2021, the maximum complaints were received by the Banking Ombudsman (90.13%) as compared to NBFC (8.89%) and the OSDT (0.98%). Overall complaints resolution rate improved to 96.59% from 92.52%.
(Related Read: Payments Digest by Cashfree- November 2021- Regulating Digital Lending & Neobanks)
Cashfree Payments’ Data on Beneficiary Bank Downtimes
In this section we share our consolidated internal data on beneficiary bank downtimes for the month of November 2021- a part of our efforts to mitigate the impact of bank system outages and downtimes on payments. More details are here. For live updates on unscheduled beneficiary bank downtimes, please visit our Status Page here.
That’s all for this edition.
| This edition has been authored by Asheeta Regidi and assisted by Urmil Shah. |
Bibliography:
- NPCI Circular: Guidelines on UPI Features, NPCI/UPI/OC-133/2021-22, dated January 27, 2022
- NPCI Press Release: NBBL launches Unified Presentment Management System (UPMS) to simplify bill payments, dated January 04, 2022
- RBI Notification: Inclusion of “Airtel Payments Bank Limited” in the Second Schedule of the Reserve Bank of India Act, 1934, RBI/2021-22/148, dated January 04, 2022
- RBI Press Release: Statement on Developmental and Regulatory Policies, 2021-2022/1003, dated October 08, 2021
- RBI Press Release: RBI releases the Report of the Working Group on digital lending including lending through online platforms and mobile apps, 2021-2022/1224, dated November 18, 2021
- RBI Press Release: RBI releases Framework for Facilitating Small Value Digital Payments in Offline Mode, 2021-2022/1483, dated January 03, 2022
- RBI Press Release: RBI releases “Eligibility criteria for entities to be categorized as Specified User under clause (j) of Regulation 3 of the Credit Information Companies (Amendment) Regulations, 2021”, 2021-2022/1500, dated January 05, 2022
- RBI Press Release: RBI releases Annual Report of Ombudsman Schemes, 2020-21, 2021-2022/1533, dated January 12, 2022
- RBI Press Release: Reserve Bank of India announces Digital Payments Index for September 2021, 2021-2022/1568, dated January 19, 2022
- Website: Unscheduled Bank Downtimes, Cashfree Payments
- Website: UPI Ecosystem Statistics: UPI P2P and P2M Transactions, NPCI
