Payments Council of India (PCI) submits recommendations for driving financial inclusion through payments

The Payments Council of India (PCI) which constitutes more than 100 members across representing various regulated industry players in the payments and settlements systems today made a presentation to the RBI Committee on Deepening of Digital Payments (CDDP) headed by Nandan Nilekani at their office in Mumbai.

Naveen Surya, Chairman Emeritus, PCI, Vishwas Patel, Chairman, PCI and Director Infibeam Avenues Ltd, Loney Antony, Co-Chair, PCI and Managing Director, Hitachi Payment Services and Gaurav Chopra, Executive Director, PCI met RBI and presented its key recommendations for driving financial inclusion through payments.

In its report the council has recommended a medium to long term strategy for accelerating the growth of digital payments in India backed by a regulatory regime which is conducive to enhancing parity between cash and digital payments, offering seamless access to payments and settlements infrastructure (RTGS), formation of a KYC bureau, promoting economic viability through tax incentives and exemptions, stimulating competition and offering customer choice while safeguarding transactional security and providing a level playing field to new entrants.

Considering cash is the most competitive and attractive payment option, the council has suggested that all the digital platforms especially PPIs should be allowed to seamlessly issue and allow payments and remittance transactions below INR 50,000/- with minimum KYC (mobile verified) which will enhance parity between cash and digital transactions.

Currently only Prepaid Payment Instruments (PPIs) have been partially allowed direct access to payment transactions through card networks and UPI; the council has suggested all payment entities should be given seamless access to all payment infrastructure and settlements systems. Interoperability to PPIs which is currently only allowed to merchants and remittances at the domestic level should be extended to foreign merchants and foreign inward remittances.

Other Key suggestions made by PCI were:

• Allowing cash out from PPIs through ATMs and agent networks for domestic remittances of unbanked population
• Leveraging Electronic Benefit Transfer (EBT) and Direct Benefit Transfer (DBT) processing through PPIs as an efficient and economical solutions
• Conversion of all PPIs to full KYC accounts within 12 months from issuance not to be time bound but the conversion should be based on the value and additional features availed by the customers

The council has suggested the non-bank merchant acquirers to be allowed to take direct membership with card networks to acquire merchants under their own BIN. Also settlements being an important function, the council has recommended a seamless access for non-bank entities to key payment systems like RTGS, and NEFT among others.

 The council has suggested NBFCs to be allowed the issuance of credit card (physical or digital form factor). PCI believes the credit card is one of the most critical instruments for the growth of digital payments in India. While approximately 40 million credit cards have been issued so far the credit bureau hosts 400 million+ consumer records, clearly indicating to the untapped market base. The council is therefore betting big on the credit card issuance framework by NBFCs to be play a catalyst for the growth of digital payments across the economy.

On the occasion, Naveen Surya, Chairman Emeritus, PCI said, “The monthly retail payments currently are aggregated at approximately USD $275 billion and we are eyeing for USD $500 billion in the next two years. This clearly indicates our country is on the verge of becoming a digital superpower. However cash still reigns supreme and to digitize the cash use in the country we need to build a robust digital payments ecosystem besides enhancing customer faith in the industry. It was a great opportunity for us to present our recommendations to CDDP and we are confident that Nilekani who has played a critical role in building India’s digital story will help us transform the sector preparing it for the next phase of growth.”

Vishwas Patel, Chairman, PCI on behalf of the council suggested considering a KYC bureau for the entire payments system owing to technological challenges in the central KYC registry system (cKYC). He has recommended access to eKYC or digital KYC framework and an interoperable KYC infrastructure as urgent and critical to improve customer acquisition cost across payment services besides avoiding cost duplication.”

Patel also stated, “Government support in form of GST tax exemption in services like Domestic Remittance, Import duty on PoS etc. is key to drive investment and penetration in the middle and bottom of the customer pyramid.”

The council has recommended the capital and net owned funds (NoF) should be proportionate to business as it is critical from compliance cost perspective. Besides they have suggested the payment service providers (PSPs) to be allowed to seamlessly cross sell third party financial products like credit, insurance (medical/accident) among others which will nurture sustenance of the business model while offering convenience to customers.

According to Loney Antony, Co-Chair, PCI and Managing Director, Hitachi Payment Services, “All viable and profitable payment initiatives should be fully opened up to the market on a continuous basis to drive competition and innovation via  ‘on tap licensing policy’ rather than a onetime ‘window’ approach. Besides all payment entities should have the option to move up or down the value chain provided financial net worth criterion is being met with.

“Also in the absence of a Regulatory Sandbox an appropriate framework should run continuous pilots on new ideas and concepts under the industry and regulator’s supervision to foster innovation” he added.

The council strongly recommends offering end customers the choice of deciding the level of KYC for payment transactions basis his frequency, convenience and risk appetite. They have also proposed for an independent security standard/ certification to establish online payment systems as ‘Safe to Pay’ based on fulfilment of the safety and security requirements, so as to give customers the trust to transact online in a safe and secure manner besides a framework for sharing of fraud related data (negative list of individuals) by PSPs to an independent body for better vigilance and controls.

The board of payment and settlements system to be strengthened with a full-time independent payment expert was another important suggestion.