By Malavika Raghavan, IFMR Finance Foundation
Shortly after Christmas last month, a press release from the Ministry of Finance on 28th December announced that the Committee on Digital Payments (chaired by Ratan P. Watal) had submitted its Report. IFMR Finance Foundation’s Future of Finance Initiative has provided its response to the Report.
The Committee had been constituted in August 2016 with a term of 1 year to review the payments system in the country and to recommend appropriate measures for encouraging digital payments. It’s recommendations were however delivered in 4 months. The Report notes that the Committee calibrated its recommendations to fast track the attainment of its ‘Vision’: to significantly reduce cash usage in the economy and facilitate the provision of ubiquitous digital payment services and infrastructure in the country (page 21 of the Report).
The Report contains recommendations which could have far-reaching impacts on Indian financial systems design, particularly for the regulatory architecture and the operation of payment systems in the country. It recommends:
- the set-up of an independent “Payments Regulatory Board” within the RBI, which is unprecedented,
- large scale amendments to the main Payments legislation, the Payment and Settlement Systems Act 2007, and
- several measures to Government around incentivising digital payments by absorbing costs into the system.
We welcome the Report’s recommendation to include a section on customer protection explicitly in primary legislation dealing with payment systems. In the course of setting out its 13 headline recommendation, the Report shows a strong preference for supporting the use of Aadhar (and related payment systems) to verify and authenticate transactions. It supports the development of new innovations which are still in the regulatory “grey area” such as Direct Carrier Billing. The Report appears to recommend action on matters around the edges of digital payments for e.g. recommending disincentives on customers and merchants for using of cash, the use of Aadhaar where PAN numbers are not available and on income tax filings. In our response, we have also sought to highlight significant concerns that we have with some of these recommendations given the implications for customer protection and systemic risk.
Our submission to the Committee is available here.
About the Future of Finance Initiative:
The Future of Finance Initiative (FFI) is housed within IFMR Finance Foundation and aims to promote policy and regulatory strategies that protect citizens accessing finance given the sweeping changes that are reshaping retail financial services in India – including those driven by Indiastack, Payments Banks, mobile usage and the growing P2P market.