Payments Vision 2025

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• Recently, the Reserve Bank of India unveiled Payments Vision 2025 with intent to increase e-payments.

About Payments Vision 2025

• Payments Vision 2019-21: Payments Vision 2025 builds on the initiatives of Payments Vision 2019-21.
  • It has been providing strategic direction and implementation plan for structured development of the payment and settlement systems in India.
• Theme: E-Payments for Everyone, Everywhere, Everytime (4Es).
• Objective: to provide every user with safe, secure, fast, convenient, accessible and affordable e-payment options.
• The activities to be taken up during the period up to 2025 as part of Vision 2025: Integrity, Inclusion, Innovation, Institutionalisation and Internationalisation.   

Vision of the document

• Geotagging of digital payment: The RBI document has proposed enabling geotagging of digital payment infrastructure and transactions and revisiting guidelines for prepaid payment instruments (PPIs), including closed system PPIs.
• Regulation of all significant intermediaries: RBI also proposed a framework for regulation of all significant intermediaries in the payments ecosystem and link credit cards and credit components of banking products to UPI.
• Cheque Truncation System (CTS): Other proposals include bringing in enhancements to the Cheque Truncation System including One Nation One Grid clearing and settlement perspective, and creating a payment system for processing online merchant payments using internet and mobile banking.
• Regulation of BigTechs: RBI also proposed regulation of BigTechs and FinTechs in the payments space.
• Buy-now-pay-later (BNPL) systems: BNPL services have developed into a new payment mode alongside the existing payment modes like cards, UPI, and net banking.
  • This channel, facilitated by a few payment aggregators, leverages the existing nodal account (escrow account after authorisation) to route payments between a BNPL customer and a merchant.
• Three-fold jump: It seeks a three-fold jump in the number of digital payments, increase in debit card usage and less cash in circulation.

Various initiatives proposed during the Vision period

• Volume of cheque-based payments to be less than 0.25% of the total retail payments;
• More than 3x increase in number of digital payment transactions;
• UPI to register average annualised growth of 50% and IMPS / NEFT at 20%;
• Increase of payment transaction turnover vis-à-vis GDP to 8;
• Increase in debit card transactions at PoS by 20%;
• Debit card usage to surpass credit cards in terms of value;
• Increase in PPI transactions by 150%;
• Card acceptance infrastructure to increase to 250 lakh;
• Increase of registered customer base for mobile based transactions by 50% CAGR;
• Reduction in Cash in Circulation (CIC) as a percentage of GDP. 

Significance of the move

• Ease of use and convenience: It will empower users with affordable payment options accessible anytime and anywhere with convenience.
• Digital society: It is a journey towards a less-cash and less-card society.
• Global leader: This will reinforce India’s position as the global leader in the digital payments domain.
• Hike in mobile banking: With the change in customer behaviour towards embracing digital and touchless modes of payments, partly due to the CoVID, there is a spike of 50% in mobile banking users, indicating inclusion of first-time users into the digital fold.
• Expanding RTGS: RBI will look into the feasibility of expanding RTGS to settle transactions in major trade currencies such as dollar, pound, and euro, too would be explored through bilateral or multilateral arrangements.

Issues/ Challenges

• Geopolitical risks: The document also talks about ring-fencing of domestic payment systems, including the need to mandate domestic processing of payment transactions, in view of the emerging geopolitical risks.
• Frauds: with the growing adoption of digital payment modes there will be a rise in digital payment frauds.
• Domestic storage of payments data: Banks and non-bank PSOs are allowed to process payment transactions abroad subject to certain conditions.
• Charges on digital payments: The Reserve Bank would also undertake a comprehensive review of all aspects related to charges involved in various channels of digital payments.

Way Forward

• Inputs from various stakeholders: This document has been prepared after considering the inputs from various stakeholders and guidance from the Board for Regulation and Supervision of Payment and Settlement Systems of the RBI.
• Central Bank Digital Currencies: CBDC has been gaining much traction with 86 percent of the central banks globally reviewing its feasibility for cross-border transactions as well as for internal benefits.
  • CBDC is also an area of interest for G20 under its priority initiative to enhance cross-border payments.

Source:  TH