What To Expect From RBI’s Payments Vision 2025

The Reserve Bank of India has recently released its “Payments Vision 2025” document. It aims to explain how the Indian payments industry will drive digitisation and enhance the outreach of digital modes of payments across the country.  

The document also details some other important aspects including,

• Means to accelerate the development of the payments industry
• Offer a bouquet of safe, secure, innovative and efficient payment methods
• Provide low or no-cost payment options to users and merchants alike
• Offer payment services every time, everywhere
• Provide customer-friendly resolutions and grievance redressals
• Protect a customer’s personal information

Let’s take a look at each of these key components in detail.  

What Is RBI’s Payments Vision 2025?

Over the last couple of years, the Indian payments industry has gone through accelerated development. Increased adoption of technology and innovation; introduction of new payment systems such as UPI, Bharat QR, etc, and a highly secure support system have established India as global payments powerhouse. 

The Payments Vision 2025, prepared based on the guidance from the Board for Regulation and Supervision of Payment and Settlement Systems of the Reserve Bank of India, ensures,

• Further digital payment acceleration across the country
• Continuing introduction of affordable payment options
• Digital payment access to everyone, everywhere, and every time with convenience
• Push to BigTechs and Fintechs to bring in more innovation

Note that the new payments vision has been built on the initiatives enlisted in the Payments Vision 2019-21.

Anchor Goalposts Of Payments Vision 2025 

The Payments Vision 2025 document is spread across five anchor goalposts. These include integrity, inclusion, innovation, institutionalisation, and internationalisation. 

Integrity	– Weave in alternate authentication mechanism(s) for digital payment transactions – Broaden scope, usage and relevance of LEI in all payment activities  – Expand interoperability to contactless transit card payments in offline mode – Enhance scalability and resilience of payment systems  – Leverage ODR system for fraud monitoring and reportingProvide enhancements to CPFIR – Provide payee name look-up for fund transfersIncrease proportionate oversight of PSOs – Include assessment of RTGS & NEFT under Principles for Financial Market Infrastructures (PFMIs) – Explore local processing of payment transactions – Study creation of Digital Payments Protection Fund (DPPF)
Inclusion	– Enable geotagging of digital payment infrastructure and transactions – Revisit guidelines for PPIs including closed system PPIs – Consider framework for regulation of all significant intermediaries in payments ecosystem – Bring in enhancements to Cheque Truncation System (CTS), including One Nation One Grid clearing and settlement perspective – Extend Internal Ombudsman Scheme to all PSOs – Support increase in market trading and settlement hours – Upscale customer outreach and awareness activities – Revisit scope and usefulness of PIDF scheme – Attempt regulation of BigTechs and FinTechs in payments space – Continue endeavour to collect and publish granular, disaggregated payment systems data – Make payment systems more inclusive – Undertake evaluation of charges for all payment systems – Coordinate migration of government receipts and payments to digital mode
Innovation	– Facilitate framework for IoT and context-based payments – Migrate all RBI-operated payment system messages to ISO 20022 standard – Link credit cards and credit components of banking products to UPI – Create payment system for processing online merchant payments using internet / mobile banking – Organise payment innovation contests & hackathons – Review need for multiple payment identifiers – Explore guidelines on payments involving Buy Now Pay Later (BNPL) services
Institutionalisation	– Comprehensive review of legislative aspects of PSS Act provisions and regulations – Constitute a Payments Advisory Council (PAC) to assist Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) – Operationalise National Card Switch for card transactions at PoS and resultant settlements – Active engagement and involvement in international fora (discussions of standard setting bodies)
Internationalisation	– Global outreach of RTGS, NEFT, UPI and RuPay cards – Expand SFMS, InFiNet frameworks across jurisdictions – Two-Factor Authentication (2FA) for cross-border card transactions – Seek inclusion of INR in Continuous Linked Settlement (CLS)  – Bring further efficiencies in payment processing and settlements on introduction of Central Bank Digital Currencies (CBDCs) – Domestic and Cross-Border

What Does the RBI’s Payments Vision Hold For Merchants?

The Payments Vision 2025 provides a holistic view of what the RBI plans to achieve by 2025, outlining specific targets on the policy front. Here’s what merchants should know and look forward to.

Payments Innovation

1. Implement Two-factor authentication (2FA) for crossborder card transactions

RBI will evaluate the need to introduce an additional factor of authentication (AFA) for international transactions done using cards issued in India to provide additional security.

Possible implications for merchants include:

• Educate customers about such additional  authentication requirements being introduced to avoid confusion and payment cancellations

2. Regulate Buy Now Pay Later (BNPL) as a payment mode 

The RBI plans to re-examine and issue appropriate guidelines on payments involving BNPL as a mode of payment. 

Possible implications for merchants:

• New compliance requirements may come in impacting business models here
• Changes may be seen in BNPL partner models and processes for issue, for eg., recently loading of  prepaid cards/ wallets  via credit lines was restricted, impacting certain BNPL offerings 

3. Regulate BigTech and Fintechs in payments

The authorities are planning to bring BigTechs and Fintechs under the regulatory purview, a discussion paper is to be issued.

Possible implications for merchants,

• Introduce a new policy framework that focuses on multiple elements including domestic incorporation, data usage, reporting, etc. 
• BigTechs and Fintechs in payments will have to follow the new policies 

4. Link credit cards & credit components of banking products to UPI

UPI-led transactions have exponentially increased since its introduction in 2016. The primary reasons behind its popularity include the convenience and seamless experience it offers to users. 

At present, a UPI user can only link their bank accounts and debit cards to UPI VPA (virtual payment account). Authorities are in plans to link credit cards and credit components of banking products to UPI.

Till now credit payments via UPI could only happen by linking it with an overdraft account. 

Possible implications for merchants,

• Adds credit payments to UPI’s multiple features including mobile payments, QR codes and AutoPay
• Easy credit payments by customers via UPI, even at kiranas or via QR codes
• Create a framework to enable the linkage of credit components of banking products to UPI
• Ensure transaction safety and security through the process 

Centralised-Payment System 

5. Payee name look-up for beneficiary check for NEFT/RTGS/ IMPS

The existing payment systems i.e. RTGS, NEFT, IMPS, and UPI provide fund transfer confirmation to both, the sender and the receiver. However, only UPI provides the facility to validate the name of the account holder. 

Lack of account validation is one of the primary reasons behind faulty payments and frauds. 

Possible implications for merchants,

• Regulator and payments industry will explore tactical innovations to improve verifications and validations and eliminate the risk of faulty payments   
• Verify receivers for vendor payments, salary payouts, etc. by merchants/ their payments processors

6. Review the need for multiple payment identifiers

Fund transfers made via RTGS, NEFT, and IMPS ideally require the beneficiary’s account number and IFSC code. However, each account number is unique and hence the need for IFSC seems obsolete. 

RBI plans to review the need for IFSC to make fund transfers and come up with alternative options with suitable provisions to collect beneficiary bank details.

Possible implications for merchants,

• Increasingly seamless funds transfers as the industry comes up with innovative ways to verify beneficiary details
• Reduced failed funds transfers due to incorrect IFSC details 
• A chance to come up with innovations and bring about a change to the existing, obsolete methods 

7. Global outreach initiatives for NEFT/ RTGS

The RBI will actively support expanding the international reach of domestic payment systems, keeping in mind the recognition of UPI’s potential globally.

The RBI will explore the feasibility of expanding RTGS to settle transactions in other major trade currencies including USD, Pound, Euro, etc. through bi-lateral or multilateral arrangements. This has promise for supporting international trade to and from India, allowing real-time proceeds to traders in foreign currencies, and setting the stage for the country as a major centre for international financial trades. 

It also aims to analyse if central banks of other countries can open current and settlement accounts with the RBI and vice versa. This will allow them to  make and accept payments from other jurisdictions via India’s Centralised Payment System (CPS). 

Possible implications for merchants,

• Significant ease and efficiency to processing of international payments and in a timely manner
• An opportunity for financial institutions to provide foreign traders and Indian merchants with a framework to send and accept payments in a variety of currencies
• Offer cross-border transactions at a cost-effective rate, ease foreign exchange related delays/ costs

Card Payments

8. Introduce a National Card Switch for card transactions at POS locations

Currently, card transactions are processed only via the concerned card networks at POS terminals. The introduction of a National Card Switch (NCS) can increase competitiveness and efficiency to process card transactions. 

Possible implications for merchants,

• Improved processing of card transactions at PoS with reduced network related transaction failures and resultant customer dropouts
• Revisit pricing which may include reduced charges levied to merchant

9. Make contactless transit card payments in offline mode interoperable

The primary aim is to make transit cards fully interoperable across all identified use cases such as travel, toll payments, metro, etc. Customers will enjoy a seamless travel experience without needing to switch between multiple payment instruments as they move around. 

Possible implications for merchants,

• For transit operators & others infrastructure level changes or upgrades may be required once the solution is developed 
• Increased customer convenience via seamless, faster payments, easier reloading
• Reduced queues and crowding at toll booths, ticket counters, etc. 

10. Process online merchant payments using internet/mobile banking

The RBI plans to introduce a new framework to process merchant (business) transactions via internet or mobile banking through a parallel system instead of through payments gateways/ aggregators alone.  

Possible implications for merchants,

• Improved settlement timeline for internet/mobile banking transactions
• Revisit processing fee (which may increase owing to new infra setup)

Payment System Operators 

11. Ring-fence domestic payments systems

The RBI is looking to process all transactions within India which currently can be done abroad as well. This can include mandating domestic processing of payment transactions. Currently norms only mandate storage of payments data within India. 

This will possibly entail major infrastructure level changes for payments players, including adapting processes and setting up infrastructure to ensure compliance. 

Possible implications for merchants,

• Possible changes to well-established flows like for payments processing post compliance 
• Revision of costs taking into account costs of new payment flows and increased infra investment cost for payments players

12. Review PPI guidelines, including closed PPIs

The RBI has plans to analyse, evaluate and develop a framework for all types of PPIs. These would also include ‘closed-system PPIs’ which are currently not regulated or supervised by the RBI.

Possible implications for merchants,

• Unregulated PPIs including closed-system PPIs, often used by merchants for refunds, rewards, etc. will be brought under the  supervision of the RBI
• KYC norms, definitions, issue, etc. may be reviewed, which may impact merchant issue of PPIs to customers

13. Evaluate charges levied by financial institutions

Payments processing entails a range of costs from MDR, switching fees, interchange, PSP fees and so on. The RBI plans to take a comprehensive look at the charges levied by financial institutions on merchants/customers to ensure fairness. 

Possible implications for merchants,

• Cap on charges levied by financial institutions to ensure they’re reasonable and do not keep merchants/customers from using digital payment systems
• Financial institutions will have to redefine their pricing strategies.

14. Regulate all payment intermediaries including offline PAs

Innovation has introduced multiple new-age payments intermediaries in the ecosystem. Bringing all significant intermediaries including offline PAs, similar to online payment aggregators (PAs), under the regulatory ambit will be considered.

Possible implications for merchants,

• Payment intermediaries including offline PAs will have to comply with all the regulatory guidelines/mandates put forth by the RBI.
• Merchants relying on payments intermediaries and service providers may see new compliance obligations

Fraud/ Risk

15. Broader LEI usage for sanctions screening, KYC, invoice reconciliation, etc 

The RBI is encouraging the use of Legal Entity Identifiers (LEI) in payment systems and areas of sanction screening, know your customer (KYC), invoice reconciliation, fraud detection, etc. LEIs currently play an important role in uniquely identifying an entity and ensuring faster tracking and transparency in payments. For eg., LEI is mandatory for a large-value (Rs.50cr and above) NEFT/ RTGS transaction.

Possible implications for merchants,

• Merchants will see more frequent use of LEI in a greater range of payment related activities
• Merchants who did not need LEI till now may need to obtain one, and banks will need to ensure issuance of the LEIs to them

16. Leverage the ODR system to monitor and report fraud

As per RBIs Master Direction on Digital Payment Security Controls dated February 18, 2021, financial institutions (FIs) must provide a mechanism for customers to identify/mark a transaction as fraudulent on both mobile and internet banking applications. 

Once marked, the fraudulent transaction needs to be seamlessly notified to the relevant financial institutions, like the customer’s bank and thereafter to the beneficiary’s bank. For these, until a central agency to facilitate these notification (routing of messages) to the FIs, the RBI’s ODR system may be leveraged.

Possible implications for merchants,

• Seamlessly and instantly report fraudulent  transactions, possible reduction in TAT for fraud resolution

17. Geo-tagging of digital payment infrastructure and transactions 

Although the RBI has already started collecting customer transaction information including geo-coordinates of payment, it wants to examine the need and feasibility keeping in mind a customer’s privacy concerns 

Possible implications for merchants,

• No direct implications expected as most PoS devices already collect geo-location data
• Possible requirement to assist banks or PoS providers with fulfilling reporting and other compliance requirements, such as providing data on payment touch-points in use, etc.

Goals To Achieve Via The Payments Vision 2025

• Reduce the volume of cheque-based payments to about 0.25% of the total retail payments
• Triple the number of digital payment transactions across the nation
• Ensure UPI registers an annual growth of 50% and IMPS/NEFT 20%
• Increase payment transaction turnover along with GDP to 8
• Ensure implementation and adherence to tokenization rules by all financial institutions   
• Increase debit cards transactions by 20% at PoS locations
• Increase the usage of debit cards compared to credit cards in terms of value
• Mark an increase in PPI transactions by about 150%
• Increase the card acceptance infrastructure to INR 250 lakhs
• Increase mobile-based transactions made by registered customers by 50% CAGR
• Reduce the circulation of cash

Significance Of The Payments Vision 2025

The Payments Vision 2025 will primarily address three things. 

Shape India’s Payment Ecosystem

The document aims to, 

• Provide a strategic direction and implementation plan to shape India’s payment ecosystem
• Make online and offline digital payments safe, secure, seamless, convenient, accessible, and affordable

Serve As A Yardstick To All Payment Players

The Payments Vision 2025 document will serve as a yardstick for all players operating in the Indian payments ecosystem, including Fintechs and other stakeholders. It will encourage them to enhance their respective capabilities and come up with innovative means to serve the general public in every possible manner. However, these must align with the RBI’s overall vision and objectives. 

Focus On Global Reach

Owing to the successful introduction and adoption of UPI and RuPay cards in foreign countries such as Dubai, Nepal, Nepal, France, etc. the RBI now plans to capture the globe. 

Under the 2025 payments vision, India aims to make payments available for “everyone, everywhere, every time,” while ensuring utmost safety, security, convenience, and affordability.