Digital Payment Laws in India

The framework is left to banks and payment system operators to implement according to their “wishes” and is not a mandatory obligation imposed on them. Given recent trends, such as the new electronic mandate registration framework for recurring payments, which came into effect on 1 October 2021 (after several renewals), banks have been slow to develop and deploy technological solutions and infrastructures and could also take a back seat in implementing offline payments for their users, in particular if appropriate incentives are not created. It would be interesting to see if the RBI continues its efforts in favour of offline payments and ultimately mandates banks and payment system operators to implement the framework. The framework is clear in terms of compliance requirements and criteria for the implementation of the framework by banks and payment system operators. The RBI has not prescribed any specific technological solution. Presumably, this can be left to industry players to develop, test, and deploy relevant product solutions so that their users can transact offline. Offline payments may be subject to a limit of INR 200 (approximately USD 3) per transaction and a total limit of INR 2,000 (approximately USD 30) for all offline transactions. The user limit can only be replenished in online mode. By the end of 2020, adults around the world will have access to a bank account or electronic instrument to store and send money and receive payments as a basic part of managing their finances. In general, the types of fintech offerings in India are very different. The sector has seen the development of various sub-sectors based on these offerings, including online payments, digital lending, asset management (Invest-Tech), personal financial management, insurance technology (InsurTech), etc. Although these are broad categories that tend to evolve with innovation in the industry, RBI`s regulatory focus in the fintech ecosystem can be reduced to the following fintech entities in the ecosystem – payment system operators (“PSOs”), which include the IPP, National Payments Corporation of India (“NPCI”) – a payment system that operates various leading payment systems in India, including unified payment interface (“UPI”), RuPay (card payment network), etc.

and payment aggregators. In an industry where approximately $6 billion in debit and credit card transactions worth $174 billion and nearly $5 billion in transactions of prepaid instruments (e-wallets, gift cards, etc.) were possible in the 2020-21 fiscal year[3], enabling offline digital payments will significantly boost digital payments in the country. While the new framework may not have a significant impact on digital payments in metropolitan or first-tier cities in India, it is expected to do so in semi-urban and rural areas of India. Although telecommunications and internet connectivity are gaining momentum in semi-urban and rural India, there is still some catching up to do. For example, in March 2021, the Union`s Minister of Electronics, Informatics and Communications told parliament that 25,067 villages in India did not have a mobile phone and internet connection. [4] In such places, the framework offers a huge impact as it would allow people to make personal transactions via their cards, e-wallets and mobile phones without an internet connection. The framework applies to payments made face-to-face (nearby) using any mode or instrument such as cards, e-wallets, mobile devices, etc. Indian fintech startups are reported to have raised around $8 billion in 2021 through 280 funding deals. With an average investment note size of $33 million, these figures were the highest recorded in terms of transaction value and volume. In 2021, credit technology and digital payment start-ups in the FinTech sector experienced the largest influx of venture capital.

In 2015, the RBI issued guidelines for online payment gateway service providers to regulate the processing of payments for cross-border sales of goods and services (“OPGSP Guidelines”). Recently, in April 2022, the RBI decided to reconsider the above-mentioned OPGSP guidelines and published draft guidelines on the “Processing and processing of low-value export and import payments”, facilitated by the Guidelines for Online Export and Import Facilitators (“OEIF Guidelines”), which aim to revise the regulatory system for cross-border online payments for the sale of goods and services. At present, the OEIF Guidelines are only available in draft form and have not yet been notified by the RBI, and therefore the opGSP Guidelines remain in force at this time. With this in mind, this report argues that India needs to re-evaluate the PSS Act taking into account developments in the retail payments sector since its adoption and the future of digital payments in India. By deconstructing the digital payments value chain, pursuing global best practices in regulating payment systems, and identifying existing gaps in the PSS Act, this report advocates for a modern Retail Payment Services Act in India that builds on the principles of proportionate regulation and aligns regulatory flexibility with well-established legal mandates that can promote competition. Innovation and consumer protection Regulators and central banks follow certain guiding principles to develop policies and guidelines to regulate and manage key stakeholders in the digital payments ecosystem. HVPS plays a crucial role in the overall financial infrastructure by ensuring the settlement of payment obligations between banks. HVPS has come a long way, from deferred net settlement (DNS) systems, which only process transactions at the end of each day, to real-time gross settlement systems (RTGS) that process transactions continuously. RTGS systems have been adopted by almost all countries. There are currently more than 150 RTGS systems in operation, some of which have also introduced multi-currency functionality to enable cross-border payments.