RBI policy review: Digital payments to gain from dose of competition

The Reserve Bank of India (RBI) plans to encourage more retail payments players as the sector is currently dominated by a handful of companies, including banks and wallets.

“With the maturing of the retail payments market, it is important that the concentration of risk in retail payments systems is minimised from a financial stability perspective,” said the central bank in its ‘Statement on Developmental and Regulatory Policies’. 

It “plans to encourage more players to participate in and promote pan-India payment platforms so as to give a fillip to innovation and competition in the sector.” A policy paper in this regard will be put out for public consultation by September 30. The paper will invite private players to bring about pan-India payment platform, said RBI Deputy Governor BP Kanungo at the Monetary Policy press conference.

“It is a welcome move as the RBI has finally recognised that the retail payments space is dominated by a handful of players. About 99 per cent of the $250 billion monthly retail transactions are controlled by banks and only 1 per cent is for non-bank players, mostly wallets,” said Naveen Surya, chairman, Payment Council of India (PCI). He added that the growth in the sector, however, has been strong.  

“Retail payments have grown nearly 45 per cent in volume and 30 per cent in value during 2017-18,” had said Kanungo in a speech a week earlier. However, there is still a huge space to be covered. According to PCI, only 12 per cent of retail transactions are currently digital. Experts added that there is huge potential for additional retail payment players. “The RBI’s decision is in line with the government’s vision of making India a cashless economy. The next level of growth in digital payments is expected beyond the cities, that is, in the small towns as well as rural India, said Upasana Taku, co-founder, Mobikwik. “More players entering the business will aid financial inclusion in the country. Also, with more merchants accepting digital payments across regions in India, the stage is set for the next level of growth for digital payments, across India,” she added.
Paying Attention
  • RBI says retail payments space has concentration risk

  • It will put out consultation paper by 30 September, 2018

  • Value of digital retail transactions is at $250 billion per month 

  • 99% of this is controlled by banks, only 1% by non bank players, mostly by wallets 

  • Only 12% of retail transactions are currently digital 

  • Retail payments grew by nearly 45% in volume and 30% by value during 2017-18

While RBI wants to encourage digital payments, it is also firm on its stability requirements. Kanungo said that dilution of KYC and AML frameworks can seriously undermine public confidence in the system itself and must be eschewed. The RBI's imposition of full KYC norms on prepaid instrument players has lead to a severe loss in business for the players.

PCI’s Surya said that there has been limited progress in financial inclusion in a huge span of time, which has mostly been by a handful of players. 

“Encouraging more participation by retail payment players through supportive rules and regulations would be the key to driving financial inclusion, he added.

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