The Reserve Bank of India has outlined norms for private parties to apply for development of retail payment systems in the country like IMPS, UPI and others. In a note released by the central bank, it said that there is a need for a multi-pronged action to strengthen the retail digital payment systems.
In a major move, the RBI said that it could allow multiple entities to set up payment systems here and encourage competition. Further it also stated the entry norms and processes for becoming one among the multiple payment systems in the country could be simplified. To encourage a consultative approach the regulator has placed on the public domain its plans on the payment systems and has invited comments by February 20 of this year.
Highlighting the reasons behind this move, the RBI said that there is significant concentration risk on the platforms since “(there are) only few operators and a wide array of payment systems”. To take the example of National Payments Corp of India handles cheque payments, smartphone based UPI, instant bank transfer like IMPS and even USSD for feature phone users. This caused the platform to handle in October last year 48% of all the retail payments in the country amounting to 15% in terms of the amount flowing.
While concentration through one platform has its advantages like less cost of overseeing, easier to govern it also opens up risk of inefficiencies in a monopolistic environment, risk of failure in case of catastrophe or lack of innovation and upgradation.
Therefore the RBI has suggested a competitive open environment where players can come in with their own products and innovate further. However, this would need interoperability between all the platforms, it said.
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