Excellence in Payments
Shri B. Mahapatra, Chairman, NPCI, Shri Dilip Asbe, MD, NPCI,
distinguished guests, fellow bankers, captains of the industry and the
Honourable members of the Jury - it gives me great pleasure to be amidst
you all as NPCI today recognises the significant work done by the innovators
in payment systems of the country. Let me begin with a quote by Robin
Sharma, the motivational speaker, who says 'Small daily improvements over
time lead to stunning results'. No one can disagree with him. This is most
applicable to the area of payment systems in India which has got
international recognition. Giant strides taken by India in respect of payment
and settlement systems and the retail payment space stand out prominently.
The role played by NPCI in this regard is immense and it is only befitting that
the awards instituted by them reflect the importance ascribed towards
innovations in payment systems.
Retail payment systems in India : the Background
1. Thrust on digitisation of payment systems in India have had a relatively
recent origin. The NPCI, envisioned as an umbrella organisation for retail
payment systems in the country, was set-up with the guidance and
support of the Reserve Bank and Indian Banks' Association (IBA) in
December 2008.
2. The Payments Systems Vision Document 2005-08 of Reserve Bank had
envisaged a new institutional structure for Retail Payment Systems,
preferably owned by banks and other financial institutions, with the
objective of a) optimally using the resources through consolidation of
existing infrastructure and building new infrastructure to enable national
reach in a seamless manner; and b) creating a robust technology platform
which provides service of the highest quality to customers at affordable
price. Accordingly, in the year 2009, the NPCI started its role as a
payment system provider by operating the ATM network when IDRBT
handed over to it the National Financial Switch (NFS). Thereafter, the RBI
requisitioned the NPCI to operate the Cheque Truncation System (CTS)
on its behalf.
3. The objective of an umbrella organisation is to provide swift, convenient,
anytime-anywhere payment services which are easy-to-use, simple,
secure, fast and cost-effective for customers. NPCI over the years has
operated various retail payment systems viz. IMPS, UPI-including BHIM,
National Unified USSD Platform (NUUP) for mobile payments, RuPay,
NACH, Aadhaar based AePS, including Aadhaar Pay, APBS, BBPS,
NETC, etc., some of which are available for use on a 24x7 basis. In all the
payment systems the main role of NPCI has been to offer switching
services and the attendant clearing and settlement facilities. This has
involved creating technology platforms, setting up standards, framing
procedural guidelines, creating risk management structure, etc. which, in a
way has changed the retail payments scenario of the country. Thus initial
expectations of the Reserve Bank, have been largely fulfilled.
Retail Payment Systems : The Rise of India in the Global Map
4. India has been always been a country which has fostered innovation and
development in the area of payment and settlement systems. The past
decade has witnessed the blossoming of a myriad of payment systems, all
for the convenience of the common man.
5. For a country which has a large dependence on cash, the only major
payment system until the 90s was the cheque clearing system. We still
process over 90 million cheques per month. This is important as cheques
are also non-cash transactions and are often not given due importance.
This system was also unique in the sense that there were more than 1000
clearing houses in the country - a big number by any standard. The initial
steps towards the change in the payment systems was the mechanisation
of the clearing houses managed by the Reserve Bank in the late eighties
by the introduction of the MICR technology for cheque processing. This
not only ushered in computerisation of clearing, but also sowed the seeds
for the digitisation of payments in the years to come. The initial steps
towards electronic products were all set up by the Reserve Bank and once
the level of maturity was reached, the market was allowed to develop and
thus came about the emergence of interoperable ATMs. The NFS has
proven that in a large country like India, networked ATMs can function
very well and that costs are shared by competing entities as well. Today,
the growth in ATM usage has migrated away from the metropolitan
centres, to the Tier 3, 4 and 5 cities and the evolution of White label ATMs
is proof of the large potential that ATMs have brought in.
6. India is among a few countries which has settlement / funds available for
cheque clearing on a T+1 basis with finality. India has pride of place in the
form of the UPI for retail payments. We are also having the one of its kind
Aadhar enabled payment systems as well the most ubiquitous QR code-
based processing. All these retail payment systems have resulted in the
availability of a wide choice for the common man and more importantly, at
reasonable rates.
Excellence in Retail Payments
7. Retail payments have grown by nearly 45 per cent in volume and 30 per
cent by value during 2017-18. Retail payment systems in India are
characterised by large volumes and this makes it necessary that the
systems are available whenever and wherever they are required. If these
systems are to deliver at the desired levels of expectations, then there is a
need to focus on certain key essential features of 'excellence'. Let me
dwell a bit on each of these six excellence features:
8. The first most important requirement in this regard is 'AVAILABILITY'.
Retail payment systems, by their very nature have to be available on
demand, at all times - generally 24 by 7 - and at all convenient locations
and modes. While most of our systems do reflect this, the bottleneck is in
terms of digital connectivity. Addressing infrastructure constraint is critical
to making available retail payment services to the population. Currently, a
large number of RRBs, rural cooperative banks and district central
cooperative banks are yet to be part of retail platforms (NEFT, IMPS and
NACH). To encourage participation of citizens in semi-urban and rural
India, there is a need to bring all RRBs, rural cooperative banks and
district central cooperative banks on various retail electronic platforms
subject to their technological capability.
9. The second requirement is 'EFFICIENCY'. In a country such as ours
where the diaspora of population and the attendant requirements are of
multiple levels, it is essential that the systems are available at very cost
effective rates and that they also perform as per the levels of expectations.
10. The third crucial requirement is 'CONVENIENCE'. Today's customer is
very discerning and choses convenience over cost - a feature which is
observed prominently among the young population. The large scale use of
Mobile Banking, app based payment systems, QR Code are all testimony
to this fact.
11. The fourth hallmark of excellence is 'SAFETY'. All payment systems
should display explicit levels of safety. It would be necessary that the
systems not only meet the requirements of safety but are also subjected to
safety audits at periodic intervals.
12. The fifth essential necessity is 'SECURITY'. This is perhaps the central
pivotal requirement since the entire world of today is grappling with issues
relating to cyber security. It is of utmost importance that the risk
management practices to ensure smooth clearing and settlement
(settlement guarantee fund, default fund, line of credit, margins, debit
caps, etc.) are implemented with a conservativeness in approach and
ruthlessness in implementation across each and every product. There
have been incidents involving misuse of the payment systems / networks
to defraud the participant institutions and / or their customers. Whether the
fraudsters could have been prevented from doing so can be a matter of
debate, but there cannot be differing opinion that attention to security on
an ongoing basis can greatly mitigate this risk. Failure to do so by one /
few entities can put the entire payment system to peril. While it is gratifying
to note that NPCI - in collaboration with IDRBT - is providing optimal
security to their retail payment systems, there is an essential need for the
entire eco system to have security as an integral component and ensure
that security becomes a culture. It is necessary to keep in mind that no
system can be 100% fool proof. While experimenting security standards
that are best in class, periodically testing them for vulnerability, mitigating
the risks, it is equally important to build in resilience so that the service
continues uninterrupted or recovers within a short period if there is any
failure.
13. The sixth indicator of excellence is 'ADAPTABILITY'. In a fast changing
world, product life cycles are becoming very short and thus adapting them
for quick changes is a virtual requirement. I may at this stage indicate that
while the RBI introduced the MICR cheque clearing with the reader sorter
based processing, it also closed it a few years ago and brought in Cheque
Truncation. This is a good example of adaptability coupled with evolution.
Way Forward
14. Let me flag a few aspects, which apply to any payment service provider
and products, and may need to be examined going forward.
i. Performance
Assessment: As I look at the landscape of retail payment
systems, the question of whether we have too many products/variants could
be contemplated. Products that have outlived its utility could be eased out.
The process of consolidation, exit route for products and players should be
actively pursued. May be markets/users themselves could take care of this.
It is also useful to make the systems inter-operable to harness their true
potential.
ii. Customer Grievance Redressal Mechanism: (a) The e-BAAT programmes
and the recent media workshops that RBI has conducted reveal one striking
feature. Lack of consumer awareness not just on the various payment
options and features available, but even on the grievance redressal
mechanisms available. This illiteracy transcends across all geographies and
regions, not just rural or semi-urban, north or south and is equally true of the
staff at the front desks of bank branches. Are we doing enough to educate
the public? Should it be the responsibility of the regulator alone? The answer
is no. Let us all strive to build consumer awareness consciously and
rigorously. An informed customer is a crucial cog in the payment ecosystem.
(b) We get many complaints related to failure of transactions. In our country,
when new users are being initiated into digital financial transactions, if their
early experience is less than wholesome, they are put off, and fall back on
non-digital means. It is imperative that we harness technology to ensure this.
Payment systems must ensure 100% accuracy.
(c) While we are on the subject of consumers, let me also highlight the need
for effective redressal mechanisms. While an elaborate machinery is in place
for redressing banking-related customer complaints, the same cannot be said
about redressal of complaints in the digital space and need to be put in place.
Member institutions and payment service providers must strengthen their
grievance redressal mechanism to handle complaints, which should be
transparent, easy and effective.
15. The Reserve Bank has been placing its Vision for payment systems in
the public domain right from 2001. Work on the next vision document for
the ensuing period has now commenced. The future will hold more
challenges and the time would be ripe for consolidation as also growth.
RBI has always favoured competition and innovation in every field
including payments systems. Allowing non-banks into the payment
ecosystem was done to foster this with permission given to non-banks to
issue PPIs, establish while label ATMs, innovation and competition has
gathered momentum. This will guide the regulatory philosophy in the
coming years also.
16. In addition to issues highlighted above, we have also been receiving
inputs for the road map for payment systems over the next three-four
years. While we are working on the same, there is a need to debate and
put in [place the following in the best possible manner. They are-
a. Robust data collection, big data analysis and analytics framework for
creating benchmarks.
b. Platforms for industry wide sharing of fraud data.
c. Need for Self-Regulatory Organisations amongst various industry
sectors
d. Security standards for mobile payments, including Internet of Things'
devices and security aspects of social networks based payments.
e. Leveraging block chain or distributed ledger technology.
f. Encouraging contact less payments, including through QR code,
tokenisation.
g. Innovation through regulatory sandbox.
17. Last but not the least, the payment systems in India which, as indicated
earlier - are amongst the best in the world. This has happened only
because of the collaborative efforts of all stake holders. RBI, on its part
has always followed a consultative process with all the stakeholders while
framing regulations. While competition and innovation must be
encouraged, the regulator has to be mindful of stability of the system. For
example, dilution of KYC, AML framework can seriously undermine public
confidence in the system itself and must be eschewed.
18. The spirit to leverage technological innovation to safely and securely
bridge the gap in payment systems should continue to be our watchword.
If today's awards of excellence is any indication, I am optimistic that the
future is bright. Let us not be a part of the future - let us create the future
and make it successful.
19. My congratulations to the winners of award today. The award should
goad them to further excellence and inspire others to create a payment
system that is safe, secure, efficient, convenient and best in the world.
I wish NPCI will play a stellar role in achieving this.
Thank you.