Policy Update: RBI makes interoperability of PPIs compulsory, announces other steps to promote digital payments

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Policy Update: RBI makes interoperability of PPIs compulsory, announces other steps to promote digital payments

Komal Gupta

@Komal

April 12, 2021

Public Policy

Context

On 7 April 2021, the Reserve Bank of India (RBI) made several significant announcements pertaining to promotion of digital payments in its Statement on Developmental and Regulatory Policies (DRP Statement). These include, mandatory interoperability of Prepaid Payment Instruments (PPIs); permitting cash withdrawal from full-KYC PPIs issued by non-banks; and allowing non-bank entities such as PPI issuers, card networks, white label ATM operators etc., to take direct membership in Centralised Payment Systems (CPSs), viz. Real-Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT).

Key Measures Pertaining to Promotion of Digital Payments under the DRP Statement:

Encouraging full-KYC Migration and Greater Interoperability amongst PPIs

In 2018, RBI had issued guidelines to operationalise interoperability for PPIs based on the adoption of common standards by issuers. To this end, it suggested enabling interoperability of all KYC-compliant PPIs in three phases, i.e., (i) interoperability of PPIs issued in the form of wallets through Unified Payments Interface (UPI), (ii) interoperability between wallets and bank accounts through UPI, and (iii) interoperability for PPIs issued in the form of cards through card networks.

However, despite the issuance of the guidelines, the progress on transitioning to a fully interoperable framework has remained slow. As noted by the RBI in the DRP Statement, the lack of significant levels of migration to full-KYC PPIs have hindered the enablement of interoperability.

Resultantly, and as a measure to incentivise greater migration to full-KYC PPIs, the RBI has now increased the limit of outstanding balance in full-KYC PPIs from the current level of ₹1 lakh to ₹2 lakh and allowed the facility of cash withdrawal subject to a limit, for full-KYC PPIs of non-bank PPI issuers as well. Additionally, the RBI has now made it mandatory for issuers to enable interoperability between full-KYC PPIs and for all acceptance infrastructures.

While the efficacy of the incentives for nudging customers towards full-KYC PPIs remains to be seen, the measures provide a greater level of parity between bank and non-bank PPIs and provide an encouraging set of starting conditions for attaining interoperability between various bank and non-bank PPIs.

Access to RTGS and NEFT for non-bank entities

In a move to encourage participation of non-banks across payment systems, minimise settlement risk, and enhance the reach of digital financial services to all user segments, the RBI has decided to allow regulated payment system operators (PSOs) to take direct membership in CPSs.

While membership to these CPSs (RTGS and NEFT) are currently limited to banks and a few specialised entities like clearing corporations and select development financial institutions, the new measures would eventually enable PPI issuers, Card Networks, White Label ATM (WLA) operators, Trade Receivables Discounting System (TReDS) platforms, among others, to directly access the CPSs. These entities will, however, not be eligible for any liquidity facility from the RBI to facilitate settlement of their transactions in these CPSs.

The RBI has proposed a phased implementation of its measures; however, further details are awaited.

Enhancement of limit of maximum balance per customer at end of the day from ₹1 lakh to ₹2 lakh for Payments Banks

In the “Guidelines for Licensing of Payments Banks” issued by the RBI on November 27, 2014, payments banks (PBs) were initially restricted to accepting deposits exceeding ₹1 lakh per customer at end of the day.

Having reviewed the performance of payments banks over the first few years of their licensing and operation, and in line with similar measures extended to PPIs, the RBI has now announced an enhancement in the maximum balance per customer to ₹2 lakh at end of the day with immediate effect.

The move is aimed at encouraging the efforts of PBs for financial inclusion and to expand their ability to cater to the needs of their customers, including MSMEs, small traders and merchants.

NASSCOM is tracking this development closely and for any further information, write to komal@nasscom.in.

RBI data RBI regulations digitalpayments

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Komal Gupta

Policy Analyst

Policy Professional| Former Tech and Business Journalist|