DIGITALIZATION OF THE INDIAN ECONOMY|PAYMENT SYSTEMS
The demonetization action by the Government of India aimed to
encourage and promote a digital India by making payments through digital means
and thereby creating a cashless economy to enhance transparency for all
transactions throughout India and make every transaction accountable.
In the recent years, the use of mobile banking, smart cards,
e-wallets, prepaid cards etc have been increasing in India significantly. Such
instruments are called Prepaid Payment Instruments (PPI) and are governed by the Payment & Settlement Systems Act,
2007 (PSS Act) and the Reserve Bank
of India (RBI) Guidelines on PPI. Pre-paid
payment instruments are payment instruments that facilitate purchase of goods
and services, including funds transfer, against the value stored on such
instruments which represents the value paid for by the holders by cash, by
debit to a bank account, or by credit card.
Some of the important features of the PSS Act and RBI Guidelines
on PPI are as follows:
There are 3 types of PPI:
·
Closed System Payment Instruments- These payment instruments
are issued to facilitate the purchase of goods and services. These instruments
do not permit cash withdrawal or redemption. As these instruments do not
facilitate payments and settlement for third party services, they are not
classified as payment systems. For eg- online shopping wallets like Amazon Pay,
Ola Money, MakeMyTrip Wallet, BookMyShow Wallet;
·
Semi-Closed System Payment Instruments- These are payment
instruments which can be used for purchase of goods and services, including
financial services at a group of clearly identified merchant locations/
establishments which have a specific contract with the issuer to accept the
payment instruments. For eg- Paytm Wallet, MobiKwik Wallet;
·
Open System Payment Instruments- These are payment instruments
which can be used for purchase of goods and services, including financial
services like funds transfer at any card accepting merchant locations (point of
sale terminals) and also permit cash withdrawal at ATMs/BC’s. For eg- Vodafone
mPesa;
Eligibility & Capital Requirements: The Banks and Non Banking
Financial Companies (NBFCs) which comply with the capital adequacy requirements
prescribed by the RBI from time to time shall be permitted to issue PPI.
However, only those banks which have been permitted to provide Mobile Banking
Transactions by the RBI shall be permitted to launch mobile based pre-paid
payment instruments (mobile wallets & mobile accounts). Any other
person/institution which seeks authorization to issue PPI shall have a minimum
paid-up capital of Rs 5 crores and positive net worth of Rs 1 crore at all
times.
Safeguard against Money-Laundering: The guidelines on
Know-Your Customer(KYC)/Anti-Money Laundering issued by RBI to Banks shall also
apply to all the persons issuing PPI.
Value: The maximum value of any PPl shall not exceed Rs
50,000 (Rupees Fifty Thousand) and in case of semi closed payment instruments,
after carrying out a Customer Due Diligence, the balance in such PPI shall not
exceed Rs 1,00,000 (Rupees One Lakh) at any time.
Customer Protection: The issuers of PPI shall disclose
all terms and conditions in simple language including the expiry period. The
non-bank PPI issuer shall put in place an effective mechanism for redressal of
customer complaints along and publicize the same for the benefit of
customers.In case of PPI issued by banks, customers shall have recourse to
Banking Ombudsman Scheme for grievance redressal.
PAYMENTS BANK: RBI has issued guidelines for setting
up Payments Bank in India to further financial inclusion by providing small
savings accounts and remittance services to migrant labour workforce, low
income households, small businesses, other unorganized sector entities and
other users. In 2016, Airtel Payments Bank got the license from the RBI for
launching a Payments Bank. Paytm has recently launched the Paytm Payments Bank
in India. Important features of a
Payments Bank:
·
Activities:A Payments Bank is a licensed bank which can perform various
banking services including acceptance of demand deposits, issuance of debit
cards etc. Payments bank will initially be restricted to holding a maximum
balance of Rs. 100,000 (Rupees One Lakh) per individual customer.However, a
Payments Bank cannot undertake lending activities.
·
Cards: A Payments Bank can issue ATM/debit cards but not credit
cards.
·
Eligible Promoters:Existing non-bank PPI issuers; and
other entities such as individuals / professionals;NBFCs, corporate Business
Correspondents, mobile telephone companies, super-market chains, companies,
real sector cooperatives; that are owned and controlled by residents; and
public sector entities may apply to set up payments banks.
·
Deployment of Funds: A Payments Bank will be required to
invest minimum 75% of its demand deposit balances in Statutory Liquidity Ratio eligible
Government securities/treasury bills with maturity up to one year and hold
maximum 25 % in current and time/fixed deposits with other scheduled commercial
banks for operational purposes and liquidity management.
·
Capital requirement and Promoter’s Contribution - The minimum paid-up
equity capital of the Payments Bank shall be Rs 100 crore (Rupees Hundred
crore) and the Payments Bank should have a leverage ratio of atleast 3% (three
percent). The promoter's minimum initial contribution to the paid-up equity
capital of such payments bank shall at least be 40 per cent for the first five
years from the commencement of its business.
·
Other conditions - The operations of the bank should be fully
networked and technology driven from the beginning, conforming to generally
accepted standards and norms and the bank should have a high powered Customer
Grievances Cell to handle customer complaints.
MHCO COMMENT: The launching of Payments
Bank is helpful for small households and rural areas to mobilize their savings
and undertake small scale transactions. The prepaid payments instruments is a
boon to the public in India as it encourages digital payments and offers
convenience to the customers by way of simply using their mobile phones for
undertaking transactions. However, the prepaid payment instruments require a
more stringent security system to be put in place to secure the payments being
made through such instruments.
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