any other international payments channel. another instance is the proliferation of non - bank payment gateway service providers. these entities based across the globe acquire merchants in any country. domestic transactions are masked as foreign currency transactions and settled through overseas acquiring banks. 26. the card payment network has become a conduit for facilitation of initial funding and customer verification for internet based payment service providers stated earlier. it would be appropriate that card companies and the member banks take note of these developments and initiate appropriate and timely action so as to guard themselves against any reputational risk. we are continuously monitoring the developments and will take strong action against such violations. 27. this does not mean that reserve bank is averse to innovations in payment systems / products. we have an open mind towards all innovations. innovations within the existing legal / regulatory framework are easier to access and authorize ; innovations which bis central bankers ’ speeches require modifications to these would require further debate and above all the enabling legal mandate. however, all payment system providers would have to be approved under the payment system act to operate in the country. in this regard, we need to note that usa, a country which permitted free development of such products, has also started discussions on licensing and regulation of products. conclusion 28. the evolving payment systems scenario offers new challenges and opportunities to all segments of this industry. to leverage on the opportunities provided by new products, the system providers / banks need to ensure that the challenges are adequately addressed. it also has to be ensured that the products cover all segments of the population and provide an incentive to adopt these products. the regulatory process would support all orderly development of new systems and processes, within the legal mandate. i hope this conference will deliberate on all these issues especially how the aam aadmi can be provided cost - effective, safe, speedier and hassle free payment and settlement products and solutions. the challenge before all the stakeholders including banks and non - bank players, it vendors, other service providers, etc. is how to introduce such a next generation payment and settlement system and solutions that is needed to take the country into the 21st century. bis central bankers ’ speeches annex statistics – at glance bis central bankers ’ speeches

to provide their customer the latest payment products, many banks have outsourced these activities to specialized entities. the numbers of such specialized entities are limited and many of these entities sub - contract the activities. the concentration of such activities among few service providers is a matter of major concern. outsourcing of activities should not result in outsourcing of controls by banks. that would be tantamount to abdication. i find it strange when banks often approach us for permitting outsourcing of performing kyc checks. this would be the opposite extreme of the example i stated earlier. outsourcing activities should be monitored by banks on a continuous basis. the operational and concentration risk aspects have to be assessed with due care on a continuous basis. outsourcing has to be a measure undertaken to reduce cost and bring in more efficiency. outsourcing cannot be a conduit for abdication of responsibility. cost 17. technology driven innovation have to have two effects – ( i ) speed, auditability / security etc, ( ii ) reduction in cost for the consumers. in his recent book global crisis, recession and uneven recovery, dr y. v. reddy writes, “ ethics in globalised finance..... tended to comply with the formality of transparency, but attached no value to the fairness of transactions between the contracting parties... the level of interest charged, the level of profits made, or the level of remunerations to individuals were not required to be justified as morally right or wrong, because it was left to the markets to determine the appropriateness of compensations ”. extending this to the area of payment and settlement system which touches the lives of every citizen in a country, i would venture to say that no technology driven payment system can be called fair unless it is able to bring about an overall overwhelming reduction in the cost of transactions – achieved through decreased overheads and increased processing volumes. 18. a review of the progress we have achieved so far makes one conclude that while we have been able to achieve the first aspect, we are yet to pass on the benefit of reduction in cost to the customers. in fact, in many cases, the cost of transactions has often increased. banks have also found innovative means of sustaining the income even when the regulatory interventions on charges have happened. what else can justify the customers being charged for moving money within the same bank from one branch to another? we have often been confronted with complaints where the customers are charged more for moving funds