Payments Digest by Cashfree: July 2021- e-RUPI & UPI’s changing face

Via our Payments Digest, we aim to provide a view on key developments with payments regulations each month. Discussions for Edition 7: e-RUPI enables prepaid vouchers on UPI- what does this mean for use-cases like gift cards? NPCI, BIS & MAS announced a blueprint for Nexus- how does this impact cross-border payments? RBI norms for Phase I non-bank access to NEFT/RTGS are out- what does this mean for the industry, and more. 

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PART I: What e-RUPI means for UPI based gifting and other use cases

The NPCI introduced the facility of one-time use ‘UPI prepaid vouchers’, launched as ‘e-RUPI’ this month. Healthcare vouchers like for vaccines are the most talked about use-case, and for good reason. e-RUPI can be delivered straight to the beneficiary’s mobile phone. There is no need for a bank account, a downloaded UPI app or even a smartphone to receive the benefit, since it is delivered via a QR code/SMS string. The reach is thus far greater, irrespective of whether the beneficiary is banked or unbanked, a feature phone user or a smartphone user. Further, the vouchers cannot be transferred, reloaded, used at any other merchant or for any use other than that specified, preventing any leakage or misuse of the benefits. 

Apart from healthcare, for which there are a number of specific prescribed rules, e-RUPI is enabled for any other B2C prepaid use cases. Vouchers are capped at Rs.10k.

Takeaways for the Industry

For players in the prepaid card issuance space	For merchants & customers	For the payments industry in general
Only bank PPI issuers, which are also UPI PSPs, can issue these vouchers. Non-banks including infrastructure providers (API based issuing) can of course rely on partnerships here. Further, these can only be issued digitally. Contactless payments are anyway welcome with the pandemic, but this also eases requirements for physical cards, like partnering with card networks & BIN providers, ensuring PCI-DSS compliance, etc. Prepaid card use-cases are multiple- of these & apart from govt benefits & healthcare, e-RUPI works for other one-time benefits, cashbacks, coupons, etc. It can also majorly disrupt the gifting space. These are normally one-time use, & e-RUPI makes customer acquisition much easier, with no need for the recipient to sign up for a wallet, download an app or anything else to receive or use the benefit.	Any corporates, govt. departments, etc. with full KYC bank accounts can ask their banks to issue these. Issues like voucher validation, blocking duplicate requests, etc, will be handled by the banks, and any unused vouchers will be refunded post expiry. To accept the vouchers, merchants will need an app/ other facility, provided to them by their acquiring banks, to scan the QR code/SMS string. With 11 banks live already, customers may soon receive e-RUPI benefits from sponsors. P2P uses, for eg., gift vouchers from one customer to another (family, festivals, weddings, etc.) are yet to be enabled.	e-RUPI has huge potential as an additional feature of UPI, even though it currently doesn’t appear to depend on UPI infra for issuance or acceptance. This can add UPI as rails on which PPIs can be issued. For example, while overdraft account linking can disrupt the credit and credit cards space, AutoPay the lower value recurring payments space, e-Rupi can disrupt the gifting and one-time prepaid use cases space. This can add to instruments that back UPI payments (savings/current/overdraft and e-RUPI) and increase the use-cases that are enabled thereby. Wallet based UPI payments are actually possible already given mandatory wallet interoperability via UPI, allowing say PPI based gift cards that pay via UPI. e-RUPI nevertheless greatly increases reach and ease of issuance here.

Even with e-RUPI’s disruptive potential for certain use-cases, reloadability, higher balance limits (Rs.2L vs. e-RUPI’s Rs.10k), permitted cross-border payments, etc. ensure many use-cases, like general purpose reloadable cards, global travel cards, payroll cards, reloadable transit cards, etc. remain with traditional PPIs. 

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PART II: Nexus- towards UPI based cross-border payments in under 60 seconds

Over 60 countries now have instant payment systems (‘IPSs’), and UPI’s phenomenal success in India has also played a part in inspiring their development internationally. While IPSs enable domestic payments in seconds, cross-border payments are quite another story. Time, costs, infrastructure, interoperability, currency conversion, etc. are only some of the pain points here. So far, only individual country level efforts have been made for making IPSs international (eg.: linking Thailand’s PromptPay and Singapore’s PayNow, Singapore’s NETS accepting UPI QR, etc.).

Via Nexus, the NPCI, BIS and MAS provide a blueprint for a scalable, instant cross-border payments network. This aims to link multiple IPSs to enable cross- border payments(‘CBPs’) between any of them in under 60 seconds. In line with the way most IPSs work, it currently targets payments by individuals and small and medium businesses (‘SMBs’), thus covering lower-value P2P, P2M and B2B (for SMBs) transactions. There will also be a ‘Nexus Scheme’ and a ‘Nexus Gateway’ to enable the interoperability- covering rules and obligations for participants, and the tech enabling the processing respectively.

Takeaways for the Industry

For banks	For the regulator	For merchants & customers	For the payments industry
To move money between countries, banks normally need either a presence in both countries or maintain funds with ‘correspondent’ banking relationships with other foreign financial institutions. With direct transfers between customer accounts via Nexus, banks are freed of these (for permitted use-cases), needing only to onboard with the Nexus Scheme. Banks can also offer cheaper CBP payments, since they are freed of costs levied by each institution in the transaction chain. Even domestically UPI payments are cheaper. The Nexus Gateway also handles transaction processing & sanction checks, easing this for banks which normally need separate systems for these (remittance processing & compliance checks).	In India, regulatory norms, arrangements & compliance requirements differ for types of CBPs. Documentation requirements also vary, for eg., OPGSP Import requires invoices & airway bills. LRS requires PAN, bank statements, A2 forms, etc. Banks also have reporting requirements for the cross-border transactions enabled (CBWTRs, FETERs, etc.). While the Nexus Scheme will outline minimum requirements applicable globally, participants still need to adhere to local norms. Thus Nexus will require its own ‘domestic’ regulatory scheme in India, specifying permitted transaction types (P2P, P2M, B2B?), caps, and compliance requirements.  Prescribing simplified requirements here can also help support the ‘instant’ CBPs Nexus aims for.	Any customer with a UPI app will also be able to make UPI CBPs from the same app. Plus, these will be available 24/7/365, & at a lower cost than regular CBPs. This greatly eases access to CBPs. Updates on payments status (success/failure) & actual amounts received will also be instant. Normally this varies due to multiple potential failure points & fee deductions en route. More clarity on merchant benefits will be gained once India’s regulatory scheme for Nexus is out. For eg., will P2M/B2B/M2P transactions be permitted & what will compliance requirements be. If permitted, Nexus may offer a simple alternative here.	Infra/processing issues with CBPs are specific & vary per country, usually necessitating custom solutions by payments players. Differing data formats/standards, data protection requirements, processes & sequence of steps, etc. all need coordination. The Nexus Scheme & Gateway aim to address this, enabling message translation, payments sequencing, currency conversion, account validation, etc. This eases the effort needed for payments players to add a CBP mode. Further, even non-bank PSPs with access to IPSs (like UPI’s TPAPs) can provide these services. Thus say you may see wallet based CBPs via Nexus (since wallets can pay via UPI).

The BIS has invited feedback to its Blueprint, so any suggestions for improvement can be shared with it. 

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PART III: RBI norms for Phase I non-bank access to Centralised Payments Systems (NEFT/RTGS) are out

RBI norms on Phase I of non-bank access to centralised payment systems, i.e., NEFT/RTGS are out, granting access to PPI issuers, card networks & white labelled ATM operators (‘WLAs’). First announced in April, this membership reduces the dependency of these entities on banks to facilitate settlement, reconciliation, refunds, and other inter-bank transfers. The benefits range from lower costs, greater transparency & efficiency with settlements/reconciliation, faster payments completion, reduced risk of failure, etc. A previous edition also discusses this. 

The official norms bring some additional clarity. Entities must have net worth of Rs.25 crores or as prescribed for their certificates of authorisation, whichever is higher. Permitted use-cases and transaction types are also specified, as outlined below. With wallets (PPIs), for eg., customer can use NEFT/RTGS to make payments/ load their wallets, & the wallet issuers themselves for settlement and other inter-bank transfers. Further, a sponsor bank will not be needed any more to gain CPS membership. The entities can directly open a current a/c in e-Kuber (to hold liquid funds) and maintain a settlement a/c with the RBI (to receive settlements), & have INFINET & SFMS membership (for communication with the CPS). They will also now have their own IFSC code.

Permitted use cases for non-banks with CPS membership- Phase I

Non-banks	RTGS/ NEFT	Permitted Use-Cases	Examples
PPI Issuers	Both	i) RTGS/NEFT customer payments- from PPI issuers to merchants / PAs. ii) RTGS/NEFT payments- by Full-KYC PPI customers to load PPIs from their bank account. iii) RTGS inter-bank transfers- from PPI issuers to other member banks / non-banks.	i) Customers making payments via NEFT/RTGS from or loading their m-wallets/prepaid cards. ii) Settlement with acquiring banks, refunds, payouts (disbursals) via wallets.
Card Networks	RTGS	i) Multi-lateral net settlement batches (MNSB) in RTGS- by card networks for settlements, dispute management, annual fee collections, etc. ii) Cannot use RBI current account for settlement guarantee & related activities.	i) Settlement with merchants.
WLA Operators	RTGS	i) RTGS customer payments- from WLA operators to agencies handling ATMs. ii) RTGS inter-bank transfers- from WLA operators to other member banks / non-banks. iii) MNSB in RTGS- by direct credit to WLA operators in NFS settlements.	i) Payment for cash purchases from RBI/banks. ii) Inter-bank funds settlements for WLA transactions involving issuing/sponsor banks, like customer transactions, cash deposits, bill payments, etc.
All	—	i) RTGS inter-bank transfers- by non-bank PSPs to maintain sufficient balance in their escrow account with member bank/s based on net debit or credit position. ii) MNSB in RTGS allowed by NPCI- for settlement of transactions of non-bank PSPs without involving their sponsor banks. iii) Own Account Transfers between current & RTGS settlement accounts of non-bank PSPs- to maintain sufficient balances.	i) Non-bank PPI issuers keeping outstanding balance in the escrow account in India.

(Related Read: Payments Digest by Cashfree: April 2021- CPS membership, New m-wallet rules, RRA 2.0)

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Others- March’s DPI, RBI on Big Tech in finance, Daily NACH

1. The Digital Payments Index for March 2021: The RBI introduced the DPI in January this year to capture the extent of digitisation- taking March 2018 as the base at 100, for March 2021 it is 270.59.

2. RBI on regulating Big tech in finance in the FSR: In its Financial Stability Report for July 2021, the RBI commented on addressing concerns with big tech in finance via an approach that blends ‘activity-based’ and ‘entity based’ regulations, along the lines of international discussions on this (BIS & others). This is an interesting development from a policy perspective, since RBI regulations normally address specific activities only (say lending, payments, etc.). This marks a change in the RBI approach, allowing supervision of any large companies, and not just traditional big tech, for their activities as a whole, allowing closer monitoring of risks as they arise.  

3. Daily NACH: From August NACH will be available all days of the week, instead of bank working days alone. The NPCI issued a circular in July with details for banks on the changes needed on the infrastructure front. The development eases NACH uses, for eg., allowing timely loan collections the year round instead of the occasional delay, or can permit salary disbursements even on weekends, which was previously not possible. It also opens NACH to new uses cases like services using prorated billing (eg.: SaaS). An earlier edition discusses this in more detail.

(Related Read: Payments Digest by Cashfree: June 2021- Enabling daily NACH)

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That’s all for this edition. Stay safe.

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Bibliography

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