Reserve Bank of India: Feedback on Discussion Paper on Charges in Payment Systems

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Reserve Bank of India: Feedback on Discussion Paper on Charges in Payment Systems

Apurva Singh

@apurvaa

October 21, 2022

Public Policy

246

Backdrop

The Reserve Bank of India (RBI), in August, had released a discussion paper on “Charges in Payment Systems” for stakeholder consultation.[1] This move came after the RBI had announced in its “Statement on Developmental and Regulatory Policies – December 2021” about the same.[2] The objective of this Discussion paper is to ensure that charges for payment services are reasonable and determined competitively for users while also providing optimal revenue stream for the intermediaries.[3]

NASSCOM’s Inputs

We noted that while higher transaction processing fee may have an impact on businesses, unreasonably low or no transaction fee may have an adverse impact on innovation and restrict competition in the payments sector, thereby, impacting consumer outcomes, and India’s competitive edge in the digital payments ecosystem.[4] Wed submitted our comments with the backdrop that the digital payments ecosystem in India involves multiple diverse players, has aided financial inclusion, and should be viewed at from the lens of:

Consumer preference: Consumer preference plays a pivotal role in evaluating how the payments ecosystem can deliver benefits to all the participants, particularly consumers and merchants. It encourages competition between service providers leading to better prices of services as well as innovative products and services. It is essential that the RBI ensures that the users have a right to choose how they pay and get paid - including by selecting the products and services that best meet their needs.
Financial viability of players in the payment’s ecosystem: Digital payments is a diverse ecosystem wherein various participants interact and partner to provide optimal solutions to buyers and sellers to execute an enormous volume and variety of transactions. It is necessary that the regulator and the industry ensure a balance across stakeholders and that policies are not disproportionately disadvantageous to one side of the market or one set of participants over the other. For instance, we understand that the situations like zero Merchant Discount Rate (MDR) in UPI and RuPay debit card have put stress on the payment intermediaries.[5]
Innovation and security: While India’s digital payments ecosystem is witnessing tremendous growth[6], this growth is accelerated by innovative technologies improving payment experience of the users, it needs to be ensured that inclusive societal values are delivered to customers. The ecosystem participants in the digital payments’ ecosystem need to ensure that innovation is complemented security of payment infrastructure. It needs to be kept in mind that the industry reinforces this opinion and invests to preserve and enhance the security of the payment transactions it processes.

To this effect, we noted that the objective for participants in the payment’s ecosystem is to offer services at a competitive cost to merchants to encourage digital payments and their own business. Therefore, in our submission, we have maintained that the charges in payment transactions should reflect the realities of the wider and diverse ecosystem and the market.

You can find our detailed submission to RBI attached.

For more information, kindly write to apurva@nasscom.in.

[1] See, Reserve Bank of India, Discussion Paper on Charges in Payment Systems (August 2022), available at https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/DPSSDISCUSSIONPAPER5E016622B2D3444A9F294D07234059AA.PDF. (Discussion Paper)

[2] See, Reserve Bank of India, Statement on Developmental and Regulatory Policies (December 2021), available at https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR1323074F320A9E284B35860C630D6BC2E12C.PDF.

[3] See, Discussion Paper.

[4] See, Hikina Whakatutuki, Issues Paper- Regulating to reduce merchant service fees, Para 78-79 (December, 2020), Ministry of Business, Innovation and Employment, New Zealand, available at https://www.mbie.govt.nz/dmsdocument/12383-issues-paper-regulating-to-reduce-merchant-service-fees-pdf.

[5] See, Shreya Nandi, Why MDR remains a thorny issue for payments players (January, 2021), LiveMint, available at https://www.livemint.com/news/india/why-mdr-remains-a-thorny-issue-for-payments-players-11610039842584.html; Also see, Indian Express, Roll back zero merchant discount rate on UPI, RuPay debit card payments (January 2022), available at https://indianexpress.com/article/business/banking-and-finance/merchant-discount-rate-rollback-on-upi-rupay-debit-cards-7737229/.

[6] See, Economic Times, India’s digital payments market will triple to $10 trillion by 2026: PhonePe-BCG study (June, 2022), available at https://economictimes.indiatimes.com/tech/technology/indias-digital-payments-market-will-triple-to-10-trillion-by-2026-phonepe-bcg-study/articleshow/91963637.cms.

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