The payment-system economy is preparing itself for regulations that will drive competition and growth over the next decade. Last month the Reserve Bank of India published a white paper and set up an expert committee in this regard. (Photographer: Dhiraj Singh/Bloomberg)

The Payments Council’s Suggestions To RBI’s Nilekani Panel

As the use of Aadhaar is restricted for online verification of customers, the payments industry lobby suggested a common know-your-customer bureau to make user authentication easier.

Such a bureau would provide market players access to digital KYC environment and help bring down customer acquisition costs across payment services an interoperable infrastructure, the Payments Council of India said in a presentation to the Nandan Nilekani-led Reserve Bank of India’s panel for boosting digital payments.

The suggestion comes as the Aadhaar-issuing authority—UIDAI—has barred access to its database citing security concerns. That hurt the fintech industry, including mobile wallets, as the physical costs of verifying customers are high. The Supreme Court also later prevented the use Aadhaar by companies for customer validation.

The Payments Council’s recommendations to the RBI follow the central bank’s Jan. 21 policy paper seeking comments on the future of the retail payments and how regulations could be crafted to encourage competition.

“Our country is on the verge of becoming a digital superpower,” Naveen Surya, chairman emeritus, PCI, said in a media statement. “However, cash still reigns supreme and to digitise the cash use in the country we need to build a robust digital payments ecosystem besides enhancing customer faith in the industry.”

A KYC bureau could mean that all records will be stored in a centralised manner and whenever a customer is on-boarded, the payments service provider needn’t collect physical documents and, instead, verify the identity through the bureau. The PCI suggested that consumers should be allowed to choose the level of KYC for payments based on their frequency of use, convenience and risk appetite.

Also read: How RBI Can Shake Up India’s Retail Payment Systems

Tax Incentives, Easier Regulations

Vishwas Patel, chairman at PCI, said the government should support the industry through exemptions in GST on services like domestic remittances and import duty on point-of-sale machines.

The PCI also proposed that minimum capital level and net-owned funds should be in line with the size of the service provider as financial barriers increase compliance costs for new entrants.

All viable and profitable payment initiatives should be fully opened up to the market on a continuous basis via on-tap licensing to drive competition instead of a “one-time-window approach”, Loney Antony, Co-Chair at PCI and managing director, Hitachi Payment Services, said. He recommended a framework similar to a regulatory sandbox for piloting new ideas and platforms under the industry and regulator’s supervision.

Greater Access For Wallets

Prepaid payment instruments like wallets have a partial access to card networks and the Unified Payments Interface. The PCI recommended that these be given equal and seamless access and interoperability of the instruments should be expanded to foreign merchants.

Here are the other recommendations:

  • Cash withdraws be permitted through prepaid instruments through automated-teller machines and agent networks, and they can be used for electronic and direct benefit transfer.
  • Non-bank entities be given seamless access to key payment systems like RTGS and NEFT, among others.
  • Non-bank lenders be allowed to issue credit cards (physical or digital) as there is a huge “untapped market base”.
  • Allow payments players to cross-sell insurance and other third-party financial products.
  • Framework to share fraud-related data between service providers and establish an independent body for supervision and vigilance.
  • Establishing a safety and security standard to give customers the trust to transact online.