The Reserve Bank of India (RBI) unveiled a set of digital payment-related initiatives on Wednesday, including enabling fintech firms to process RTGS and NEFT transactions and establishing new seamless integration and cash withdrawal standards for digital payment wallets. These steps seek to balance the competitive ground between non-bank payment operators and banks while simultaneously lowering settlement risks by growing the fintech ecosystem. Paytm, MobiKwik, ClearTax, MoneyTap, MoneyView, Visa, Mastercard, and PhonePe, and etc, will be able to accept RTGS and NEFT payments in the near future. In his Monetary Policy Committee (MPC) address, central bank governor Shaktikanta Das stated that fintech firms such as prepaid instrument issuers (PPIs), card networks, and TReDS providers, etc, will now be able to join the central bank's centralised payment systems, such as RTGS and NEFT. This step is important because these networks, which are usually used for handling big-ticket interbank transactions and business payouts, were previously only open to banks. Shaktikanta Das, the governor of the central bank, said that "Membership to the RBI-operated Centralised Payment Systems (CPSs) - RTGS and NEFT - is currently limited to banks, with a few exceptions."
He also added that "It is now proposed to enable non-bank PSOs like PPI issuers, card networks, white label ATM operators and Trade Receivables Discounting System (TReDS) platforms regulated by RBI, to take direct membership in CPSs."
RTGS, or Real Time Gross Settlement System, is widely used for transactions of more than Rs 2 lakh between businesses. Even though the central bank made it operational around the clock in 2020, its adoption by retail customers is minimal. Similarly, NEFT, or National Electronic Funds Transfer, is a payment system that allows funds to be transferred between banks. The RBI also declared it compulsory for digital wallets to be fully compatible on Wednesday, thus relaxing full-KYC PPIs' cash withdrawal and account balance cap standards. Although the RBI released regulations in October 2018 for full-KYC PPIs to implement interoperability on a voluntary basis, Das added that the migration toward interoperability has not been meaningful. To convert more PPIs, such as semi-KYC closed-loop wallets, into complete KYC digital wallets, the account balance cap on these PPIs has been raised to Rs 2 lakh from Rs 1 lakh.
According to source (The Economic Times) Das also added that "To incentivise the migration of PPIs to full-KYC, it is proposed to increase the current limit on outstanding balance in such PPIs from Rs lakh to Rs 2 lakh."
Cash withdrawals are now restricted to full-KYC PPIs issued by banks, such as debit and credit cards. With this initiative, a payment wallet or prepaid card from Paytm, PhonePe or Mobikwik will now be used to withdraw cash from ATMs, micro-ATMs, and registered Point of Sale terminals. In addition, the central bank will authorise payments banks to raise their customers' account limits from Rs 1 lakh to Rs 2 lakh. Das explained that the aim is to expand payment banks' services to small merchants and other businesses.
Das further added that "The measure, in conjunction with the mandate for interoperability, will give a boost to migration to full-KYC PPIs and would also complement the acceptance infrastructure in Tier III to VI centres."
The Reserve Bank of India has also introduced to allow full-KYC PPIs to be used for cash withdrawals. In a post-MPC press conference, RBI ED Rabi Shankar stated, "This is to level the playing field between banks and non-bank PPI issuers."
"The fact that PPI holders will have the comfort of knowing that they can access cash whilst holding balance in their PPI accounts will give fillip to digital payments," Shankar said.