The news of RBI having had outlined the norms for private entities to set up payment systems like IMPS, UPI, and so on has given a reason to innovate new options. This decision has sent an indication that the country is going to witness an era of even more progressive time in the coming future. It is a fact that banks have been the conventional doorway to extend payment system until the time non-bank entities were permitted to be a part of the payment space.
With inclusion of more of non-bank entities in the payment system, the demand for varied payment services can be met with ease. This move by RBI is a high-spirited one as these private entities are both competitive as well as co-operating with banks. Hence, they strive to provide the eco system with a boosting go-ahead, which is extremely beneficial for the economy as a whole. This move by central bank is a liberal one and is sure to help the country grow parallel to the fast pace of technological changes happening frequently worldwide. By the end of 2018, reportedly, there were 89 authorised non-bank (private) Payment System Operators (PSOs). This was a necessary step since many of the private or non-bank entities have been contributing to the payments domain even though there are some elements, which draw distinction between their roles and the roles of banks. This move is sure to increase the digital transactions successfully.
The issues, to look into, which are the concerns of RBI, like, concentration of all payment systems in a single entity and lack of competitiveness, have some actual drastic implications on the entire eco system.
An example of a single payment system operator for multiple payment systems is NPCI, that has following under it:
National Financial Switch (NFS), CTS, IMPS, UPI-including Bharat Interface for Money (BHIM), National Unified USSD (Unstructured Supplementary Service Data) Platform (NUUP), NACH, AePS, BHIM Aadhaar Pay, APBS, BBPS, National Electronic Toll Collection (NETC), National Common Mobility Card (NCMC), RuPay.
The risky implications associated with the current scenario of limited Payment System Operators (PSOs) and a wide array of payment systems are as follows:
- Operational Risk – Having a single entity for various payment services calls for a huge risk to take. This is because in case of failure of entity the fall back options go down to being nil and it may lead to a huge loss. This is sure to affect the flow of the availability of services.
- Static ecosystem – Being a single entity creates the structure of monopoly in the eco system, which can deprive the same of improvisations, innovations and upgradations which can otherwise surge and bring additions and betterments in the services.
- Hampered quality of services – Non-diversification of payment system operators for varied payment systems may lead to hampered quality of services as the payment operator may compromise on charges, access, quality of services, and so on in absence of a competitors.
Important Decisions and their Consequences for Appropriate level of retail payment systems and operators:
The proposal of multiple payment system operators (PSOs) is bound to make for a better ecosystem since more operators encourage competition and bring in betterment. With several entities flowing in, more competition means more entities racing forward to bring in innovative and upgraded services. Consumers being the ultimate beneficiaries of all the developments, these services are sure to make a country progress toward betterment in terms of digital transactions.
Open and keep-on-tap the window of making applications for all the payment systems is another advantage for digital payments space. In this, the entry and exit being open on-tap can make both the receipt of applications for entry and exit of the entities unable to achieve the requirements much simpler.
Liberal entry point norms have been approached for providing several benefits to non-bank (private) entities as well along with alignment of regulatory framework to encourage participation by more private companies.
With this move by RBI, we foresee progressive changes and dynamic improvements as well as advancements in the payment ecosystem along with the way consumer makes payment transactions. In our opinion, these are going to nudge the country toward betterment by synchronizing the payment systems with the global parameters.