Payment and settlement systems are the backbone of any economy. The last decade has witnessed substantial developments in this area of activity across the country. The Reserve Bank of India (RBI), under powers from the Payment and Settlement Systems Act, 2007, has endeavoured to ensure that India has ‘state-of-the-art’ payment and settlement systems that are not just safe and secure, but are also efficient, fast and affordable. Efforts in this direction has yielded handsome results. The planned development of the payment systems has been guided by RBI’s vision document for the payment and settlement systems in India which is being put out in the public domain since the year 2002; the last in this series was the Payment Systems Vision 2018. The current Vision document outlines the road map for the three-year period spanning from 2019 to 2021.
The Payment Systems Vision 2021 with its core theme of ‘Empowering Exceptional (E)payment Experience’ aims at empowering every Indian with access to a bouquet of e-payment options that is safe, secure, convenient, quick and affordable.
The Vision 2021 for payment and settlement systems in India enhances the strong foundation built over the last two decades. While the pursuit towards a ‘less cash’ society continues, accompanied by the ambition to have a less-card India as well, the endeavour is to also ensure increased efficiency, uninterrupted availability of safe, secure, accessible and affordable payment systems as also to serve segments of the population which are hitherto untouched by the payment systems. The decade to follow will witness a revolutionary shift in the way Indian citizens use digital payment options and will also empower them with an e-payment experience that will be exceptionally safe, secure and truly world class,.
Vision 2021 concentrates on a two-pronged approach of, (a) exceptional customer experience; and (b) enabling an eco-system which will result in this customer experience. With this in view, the Vision aims towards,
- enhancing the experience of Customers;
- empowering payment System Operators and Service Providers;
- enabling the Eco-system and Infrastructure;
- putting in place a Forward-looking Regulation;
- supported by a Risk-focussed Supervision.
To achieve the above, the Vision envisages four goal-posts (4 Cs) – Competition, Cost, Convenience and Confidence. For enhancement of Competition in the payment systems landscape, specific thrust areas like creating regulatory sandbox, authorising new players, etc., have been incorporated; this along with the presence of multiple players in the market is expected to achieve optimal Cost for the customers; freer access with availability of multiple payment system options anytime-anywhere should cater to the requirement of Convenience; the ‘no-compromise’ approach towards safety of payment systems should address security vulnerabilities to retain customer Confidence.
It is recognised that cash entails a significant cost to the whole economic system, including consumers. Migration to digital modes of making a payment can obviate some of these costs and can give customers a friction-free and enjoyable experience. Giving them multiple options is expected to make this experience exceptional, apart from furthering growth measurable in terms of digital payments turnover to GDP.
The savings achieved at all levels on account of digitisation of payments need to be considered in pricing of these services to the end customers. Payment System Operators (PSOs) need to consider cost of accessing and managing transactions and accordingly price their services. The aim is towards progressive reduction in ‘per-transaction’ cost to customers keeping in view the marginal cost advantage with increase in the number of transactions. The need to move towards marginal cost of pricing based on volume of transactions handled needs no over-emphasis.
Expected Outcomes of Vision 2021
The Payment Systems Vision 2021 covers the period up to December 2021. It focuses on further enhancements / improvements in all facets of payment systems. With concerted efforts and involvement of all stake holders, the four goal-posts of Vision 2021 with 36 specific action points over the 36-month timeframe will have the following 12 specific outcomes:
(i) Further decrease in the share of paper-based clearing as a percentage of retail payments, particularly in terms of number of paper instruments processed. Given the current trend in cheque usage and the thrust to shift to digitised transactions it is expected that the volume of cheque-based payments would be less than 2.0% of the retail electronic transactions by 2021.
(ii) Accelerated growth in individual retail electronic payment systems, both in terms of number of transactions and increased availability. Payment systems like UPI / IMPS are likely to register average annualised growth of over 100% and NEFT at 40% over the vision period. The number of digital transactions is expected to increase more than four times from 2069 crore in December 2018 to 8707 crore in December 2021.
(iii) Measurably, the digital payment transaction turnover vis-à-vis GDP (at market prices-current price) is expected to further increase to 10.37 in 2019, 12.29 in 2020 and 14.80 in 2021. Payment transaction turnover, including CCIL transactions and paper, is expected to be 22.30 times the GDP (at market prices-current price) by December 2021.
(iv) Increase in use of digital modes of payment for purchase of goods and services through increase in debit card transactions at PoS (35% increase during the vision period) and continued growth in PPI transactions.
(v) Usage of debit cards at PoS transactions is expected to be at least 44% of total debit card transactions (at PoS + ATM). In value terms it is 15.2 per cent in 2018-19 (5.2 per cent in 2014-15) which is expected to be 22% by end 2021.
(vi) Increased deployment of card acceptance infrastructure across the country including at smaller centres with a substantial portion of the infrastructure taking care of processing contactless card payments. Given the current growth trend it is expected to have 5 mn active PoS by end 2021; digital PoS (QR code) is also expected to increase substantially; and the total card acceptance infrastructure will be upscaled to six times present levels by end 2021. This is expected to support aim of cash-lite economy and also shift Cash on Delivery (CoD) transactions to digital modes for e-commerce.
(vii) While no specific target is considered for cash in circulation, the enhanced availability of PoS infrastructure is expected to reduced demand for cash and thus over time achieve reduction in Cash in Circulation (CIC) as a percentage of GDP.
(viii) Further facilitation of mobile based payment transactions as gauged on basis of the registered customer base (expected increase of 50% considering the base effect).
(ix) Enhanced usage of electronic payment systems is expected to reduce the marginal cost given the additional volume. The pricing of such services to customers should, over the vision period, show reduction of at least a 100 bps from current levels. Plus a shift from ad valorem rates to per transaction rates is envisaged, as usage of a system is irrespective of the value of a transaction.
(x) Security of systems and customer centricity as reflected by –
- Decrease in Technical Declines reported across various payment systems by 10% year-on-year.
- Reduction in Business Declines reported across various payment systems by 5% year-on-year. This will be achieved through targeted hand-holding of merchants and customers with customised campaigns by partnering with system operators and system participants.
- Improvement in Turn Around Time (TAT) for resolution of customer complaints by PSOs.
(xi) FTS [Fraud to Sales (Fraud value / Sales value) x 10000] count for payment systems is expected to be less than 10 bps for most of the payment systems.
(xii) Enhanced healthy competition in the payments space and establishment of new PSOs during the Vision period is envisaged.
The payment systems landscape will continue to change with further innovation and entry of more players which is expected to ensure optimal cost to the customers and freer access to multiple payment system options.