Payments Vision 2025

Recently, the Reserve Bank of India (RBI) has unveiled the Payments Vision 2025. The document proposes a host of innovative payment systems and regulation of BigTechs, fintechs, buy-now-pay-later (BNPL) systems, introduction of a central bank digital currency (CBDC), etc.

Key highlights –

• Five key themes — The vision document has five key themes – 5Is – integrity, inclusion, innovation, institutionalisation and internationalisation.
• Core theme — It is based on the core theme of E-Payments for Everyone, Everywhere, Everytime (4 Es). The document envisages to provide users with safe, secure, fast, convenient, accessible and affordable e-payment options.
• Big push for E-Payments — The RBI will undertake initiatives to streamline the e-payments infrastructure in the country as it prepares for the next evolution of the space. These include the incorporation of alternative authentication mechanisms, such as biometrics and digital tokens, in addition to OTPs, to authenticate users.
• Legal Entity Identifiers — The central bank will also take initiatives to promote the usage of legal entity identifiers (LEIs) to promote cross-border payments and screen sanctioned entities. LEI is an alpha-numeric code that is used to uniquely identify parties involved in a financial transaction and faster tracking of payments.
• Digital Payments Protection Fund — The RBI also said that it will undertake a study on the feasibility of digital payments protection fund (DPPF). DPPF is aimed at providing a security cover to defrauded customers and issuers of payment instruments. The RBI will also enable a framework for geo-tagging of payment system touch points across the country.
• Use of technology —
  • • The Vision 2025 document also includes a provision that calls for developing a framework for an internet of things (IoT)-based payments systems. It would enable customers to pay via connected devices apart from users’ phones and tablets.
    • The RBI also intends to create a new system for processing payments done via internet and mobile banking services. Currently, these services are routed through payment gateways and other aggregators.
• Reviewing legal-institutional infrastructure —
  • • The RBI will also undertake a comprehensive review of the payment and settlement systems (PSS) Act.
    • The central bank will also constitute a payments advisory council (PAC) to assist the board for regulation and supervision of payment and settlement systems (BPSS).
    • The PAC will comprise representatives from start-ups, consumer groups, digital payments companies, etc.
• Introduction of a central bank digital currency (CBDC) —
  • • The RBI also said that it is working towards the introduction of a CBDC in the country.
    • It went on to say that various use cases would be investigated in order to increase efficiencies in domestic and cross-border payment processing and settlement using CBDCs.
• Other proposals —
  • • Bringing in enhancements to Cheque Truncation System (CTS), including One Nation One Grid clearing and settlement perspective.
    • It also proposed regulation of BigTechs and FinTechs in the payments space.
    • The vision document recommended that the Buy Now Pay Later (BNPL) method be examined and that appropriate guidelines on BNPL payments be developed.
    • BNPL services have evolved into a new payment mode in addition to existing payment methods such as cards, UPI and net banking.
    • This channel, which is facilitated by a few payment aggregators, uses an existing nodal account (escrow account after authorisation) to route payments between BNPL customers and merchants.