India: Recent Developments in Payment and Settlement Systems

Introduction

Payment and Settlement Systems are the backbone of any economy across the world. In India, the Reserve Bank of India (RBI), as the country's central bank, oversees payment and settlement systems (PSS) to maintain systemic stability and public confidence. The Board for Regulation and Supervision of the PSS is the highest policy-making body on payment systems in India. The Payment and Settlement Systems Act, 2007 and the Payment and Settlement Systems Regulations 2008 framed thereunder provide the necessary statutory backing to the RBI for undertaking the oversight function over the PSS in the country. As per the provision of the PSS Act 2007, the Reserve Bank’s permission is required for setting and operation of payment systems in India.

The Indian payments industry has witnessed remarkable growth, innovation and regulatory support over the last few years. Consequent to the demonetisation of high-value currency notes of ₹500 and ₹1000 in November 2016, the evolution of the digital payments ecosystem has been particularly noteworthy in India. With the rapid advancement of technology and the advent of new developments and innovations in the payments ecosystem, the Reserve Bank has enhanced its focus on the safety and security of payment systems.

Further, the Reserve Bank continued its efforts to nurture efficiency, innovation, competition, customer protection and financial inclusion in the country’s payment systems. It endeavours to graduate its Information and Communication Technology (ICT) infrastructure to next generation applications with an inbuilt architecture for operational excellence, scalability and security.

As per the RBI reports, between 2015–16 and 2019–20, digital payment volumes have experienced growth at a compounded annual growth of 55.1 percent. The Unified Payments Interface (UPI), which took three years (2017–2019) to register a monthly count of 1 billion transactions in India, doubled to 2 billion a month in a short span of another year. In March 2021, the UPI payments platform reached a record high, with the total number of transactions at 2.73 billion and the value of transactions crossing ₹5 trillion.

The evolution of faster payment infrastructure in India has helped foster improved and accurate payments, faster and cheaper cross-border payments, faster transit and micropayments with contactless technology, and faster merchant micropayments with QR codes. Financial innovation processes, technological change, and an increase in electronic commerce have accelerated the development of the payments sector in India.

The Reserve Bank’s Payment and Settlement Systems Vision 2019–21 document aims to enhance customer experience, developing a robust payment ecosystem coupled with forward-looking regulations and risk-focused supervision. The Payments System Vision envisages initiatives to be taken in the payment systems with a view to facilitating digital penetration by enhancing acceptance infrastructure across the country and introducing innovative payment options to deepen the reach of the payment systems.

Major Initiatives for Development of Payment and Settlement Systems

During the last few years, the Government of India and Reserve Bank of India have taken several initiatives for safe, secure, sound, efficient, accessible and authorised payments. In the last year, the Reserve Bank’s endeavour was towards ensuring the smooth functioning of all the payment systems (notwithstanding disruptions in movement of resources and access to infrastructure caused by the COVID-19 lockdown with varying intensity and duration across various locations in the country). A few initiatives were customised, keeping in view social distancing and minimal-contact requirements while making digital payments during the pandemic.

The payment and settlement systems initiatives have been mainly aimed at a) improving customer’s convenience, b) encouraging healthy competition, c) ensuring affordable costs, and d) increasing customer confidence.

A. Improving Customer’s Convenience

NEFT and RTGS Made Operational on 24x7x365 Basis: The Reserve Bank made the National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) system available in the banks on a 24x7 basis on all days of the year.

Online Dispute Resolution: Authorised payments system operators (PSOs) were advised by the Reserve Bank to implement an online dispute resolution system for failed transactions.

Installation of POS Machines in Railways: The Government took the initiative to install 10,000 point of sale (PoS) machines at various locations of Indian Railways to allow cashless transactions using debit/ credit cards.

Self Regulatory Organisation (SRO) for PSOs: In order to protect ...

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