Swiping right on digital payments: Nilekani-led panel to revamp the system

The high-level committee on deepening digital payments, set up by RBI, has listed various measures to improve financial inclusion.  Among others, the panel has recommended a reduction in costs for merchants, acquirers and customers and expansion of the acceptance infrastructure. The digital payments industry has said efficient implementation of the recommendations could accelerate the growth of digital transactions. A look at some of the recommendations of the panel, which is led by Infosys co-founder Nandan Nilekani.

Accelerating acceptance
 

Banks have issued about a billion debit cards and 50 million credit cards. But acceptance is still low from the infrastructure perspective, with only about 3.5 million point-of-sale  (POS) devices, and 200,000 ATMs. The report has said pivoting the ecosystem from issuance to acceptance is key to deepening digital payments.

Recommendations
 

• No charges on digital payments for customers till a number of transactions
• Reduce interchange fee on card payments by 15 basis points to incentivise acquirers
• Set up acceptance development fund to develop new merchants in poorly-served areas where issuers must deposit 5 basis points
• Set up a panel to review merchant discount rate and interchange fee on a periodic basis
• Include non-banking finance entities to be associate members of payment systems

Internationalisation of systems

The panel recommended that the National Payments Corporation of India (NPCI) put together an internationalisation plan for BHIM United Payments Interface (UPI), Rupay and other Indian payment technologies, perhaps starting with remittances, and Indian travellers making payments abroad. The committee said costs of incoming retail remittances for certain cross-border remittance corridors are quite high. This could be addressed by bringing in real-time payments, such as UPI to service this use-case. “Internationalisation will go a long way in establishing India as a digital powerhouse,” said Himanshu Pujara, MD, Euronet Services India. 

Facilitating digital payments by making cash more accessible Users will be more comfortable relying on digital transactions, if they know that they can draw cash when necessary, said the committee report. The RBI must ensure a healthy interoperable cash-in and cash out-network, which will include bank branches, ATMs, business correspondents, and POS devices.
 

Recommendations

• Users should have access to a financial institution within 5 km and multiple ATMs within 3 km radius
• Users can withdraw small amounts of cash from a merchant with a POS
• Revisit technical architecture of micro ATMs and ATMs, and improve it to support other banking services 
• Review recent norms on swapping cassettes for loading cash in ATMs
• Work out a viable model for ATMs in a less cash world
   

“Transition to a digital society cannot be done overnight. A robust infra offering a good network of ATMs and mini ATMs will infuse a behavioural change, thereby, shoring up the volume of digital payments,” said Mandar Agashe, founder and vice-chairman, Sarvatra Technologies.

Govt should take lead

The committee recommended that the government, being the single-largest participant in payments, must take the lead in all aspects of digitisation. It said the government must ensure all pay-outs are done through digital means and also provide for digital options for a customer to government payments.

Increase users’ awareness and trust

The committee recommended measures to increase financial literacy. “The broader issues that plague the adoption of digital payments today are high cost of payments, inadequate merchant acceptance infra, lack of trust and the misconception that one needs to be technologically sound to use digital payments,” said Sampad Swain, chief executive and  co-founder, Instamojo.