The Payments Vision 2025: RBI bats to CBDC, regulation fintechs, BNPL

The Payments Vision 2025: RBI bats to CBDC, regulation fintechs, BNPL

In The News:

• The Payments Vision 2025 has been unveiled by the Reserve Bank of India (RBI).
• This document proposes a variety of innovative payment systems as well as regulation of BigTechs and fintechs, buy now-pay-later systems (BNPL), introduction of a central banking digital currency (CBDC), and many other things.

What's today's article?

• Background
• The Payments Vision 2025 document (Key highlights and objectives)

Background:

• Payment systems promote economic growth and financial stability, as well as supporting financial inclusion.
• The RBI has made it a priority to ensure that payment systems are safe, secure and reliable.
• In the past decade, India has one of the best payment systems in the world. All over the globe.
  • g. , UPI logged more than 595 Cr transactions valued at INR 10.4 Lakh crore in May 2022.
• RBI's role has changed from one of regulator, operator, and facilitator to one of creating an environment for structured development of India's payments ecosystem.
• Since 2001, the Payments Vision documents from RBI have provided the strategic direction for this development and the implementation plan .
• This Vision document builds upon the Payments Vision 2019-21 document. It outlines the thought process and the vision for the period to December 2025.

The PaymentsVision 2025 document:

Highlights:

• Five key themes
  • The vision document has five key themes - 5Is - integrity, inclusion, innovation, institutionalisation and internationalisation.
• The core theme
  • It's based on the core theme E-Payments For Everyone, Everywhere and Everytime (4 E).
  • This document aims to offer users safe, secure, quick, convenient, accessible, and affordable e–payment options.
• Big push for E-Payments:
  • As it prepares to move forward, the RBI will take steps to streamline the epayments infrastructure.
  • They include the incorporation alternative authentication mechanisms such as digital tokens and biometrics in addition to OTPs to authenticate users.
  • The central bank will also be involved To encourage the use of legal entity identifiers (LEIs), to encourage cross-border payments, and screen sanctioned entities.
    • LEI stands for an alpha-numeric number that can be used to identify all parties in a financial transaction. It also allows for faster tracking of payments.
  • The RBI stated that it would also conduct a feasibility study to determine if the possibility of Digital payments protection fund (DPPF).
    • DPPF provides security protection for customers who have been defrauded and payment instrument issuers.
  • The RBI will also allow for geotagging of payment system touchpoints across the country.
• Technology:
  • Vision 2025 also contains a provision calling for the development of a framework to allow for an Internet of things (IoT),-based payment systems .
    • Customers would be able to pay using connected devices, in addition to their smartphones and tablets.
  • The RBI is also planning to establish a new system that will allow payments to be processed via the internet and mobile banking services.
  • These services are currently routed via payment gateways or other aggregators.
• Examining the legal-institutional framework:
  • The RBI will also conduct a thorough review of the Payment and Settlement Systems (PSS Act).
  • To assist the board in regulation and supervision for payment and settlement systems (BPSS), the central bank will also create a payments advisory committee (PAC).
  • Representatives from start-ups and consumer groups will be part of the PAC.
• Introducement of a central bank digital money (CBDC).
  • The RBI stated that they are working to introduce a CBDC in the country.
  • The report stated that different use cases would be examined to improve efficiency in domestic and cross-border payments processing and settlement using CBDCs.
• Other suggestions:
  • Enhancements to Cheque Truncation System, (CTS): One-Nation One Grid clearing and settlement perspective.
  • It also suggested regulation of BigTechs as well as FinTechs within the payments space.
  • The vision document suggested that the BNPL method should be reviewed and that appropriate guidelines be established for BNPL payments.
    • BNPL has evolved to be a new mode of payment in addition to the existing payment methods like cards, UPI, and net banking.
    • This channel is facilitated through a few payment aggregators. uses an already existing nodal account (escrow account after authorization to route payments between BNPL clients and merchants).

Objectives:

• The initiative aims to increase the scalability and efficiency of payment systems .
• The central bank's goal is to
  • Increase the number of digital payments transactions by more that threefold by 2025
  • To reduce the amount of cheque-based payments to less that 0.25% of total retail payments.
• It also proposes an annualised growth rate of 50% for UPI payments, 20% for Immediate Payment Service and National Electronic Funds Transfer (NEFT)
• The RBI will continue to push digital payments and work towards reducing cash in circulation as part of GDP.
• It will also increase the number of registered users to mobile-based transactions at a compounded anual growth rate (CAGR), of 50% by 2025.
• Its goal is to increase debit card transactions at the point of sale (PoS), by 20%, and to expand card acceptance infrastructure across India to 250k touchpoints by 2025.
  • This is done to ensure that credit card usage is outnumbered by debit card usage in terms .

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