systems that has cost implications for system participants. it is, therefore, necessary to take a practical view on such cases to prescribe the rules that are implementable and cost - effective taking into account the risks involved in retail payment systems. further, there should be standard setting bodies that can continuously benchmark the products, systems and services for continuous improvements. regulators need to play an active role in encouraging entities to put in place various standards and leveraging them for business growth and risk management. there is also strong case for uniform security standards across the jurisdictions for minimizing frauds in electronic banking. a case in point is frauds relating to misuse of international credit cards due to the absence of the requirement of second factor authentication for all the card not present ( cnp ) transactions. settlements as the retail payment being dominated by the deferred net settlement processes, there is a need for a guaranteed retail payment & settlement systems that will give comfort and assurance to all the stakeholders. in describing the settlement characteristics of net settlement systems, the concept of certainty of settlement is sometimes used. this concept refers to the certainty that the system will be able to effect final settlement when the netting cycle and the associated settlement procedures have been completed. certainty of settlement relates to a multilateral netting system ’ s ability to ensure the timely completion of daily settlements in the event of inability to settle by a participant with the largest single net debit position or failure of more than one participant. the pfmi also emphasizes on settlement risk. principle 8 of the pfmi which talks about settlement finality addresses the fundamental issue of the finality of transactions processed by an fmi. this principle is equally applicable for the retail payment systems as also principle 9 of the pfmi which encourages settlements using central bank money and where a commercial bank is used for settlement there has to be strict control credit and liquidity risks. sustainability the sustainability depends a lot on efficiency and effectiveness ( principles 21 & 22 of the pfmi ) of the system that meets the goals and objectives laid down by the payment system participants. efficiency can be measured on three parameters, i. e., cost, time and assurance. cost effective does not necessarily mean providing services at lower cost to consumers ; it has to be cost effective for the system and the service providers too. it has always been a debate who should set the price, i. e., regulators or market. although it sounds good to leave the cost aspect to markets, it is not

globe. such innovations in the retail payment landscape have thrown challenges to regulators in the following key areas : i. increased use of technologies like internet and mobile phones have resulted in innovative yet complex products and processes ; ii. the lines of demarcation between products are getting blurred as multiple access channels and devices are being increasingly used interchangeably ( e. g. both mobile banking and internet payments through smart phones ) ; iii. the entry of non - bank players into payment space has increased responsibilities of the regulators for continuous monitoring of their activities as they may pose threat to the payment systems in terms of cost and assurance to the consumers ; iv. the pricing related issue of payment services offered by non - banks has become a major concern ; v. the security issues often threaten the confidence of users of the technology dominated retail payment system products ; vi. in the context of efforts being made for financial inclusion, trade - off between expanding the reach of financial services to unbanked and the sustainability of the business model has become a challenge ; vii. although the recent financial crisis did not show any strong evidence of correlation between payment systems and financial stability, going forward payment systems, both large value and retail could be the source of instability when the financial transactions moves largely to electronic mode that gives rise to several operational & financial risks ; and viii. as often innovations are technology driven and developments in retail payment system have been rapid, the expertise and competence of staff of central banks and others engaged in regulation and oversight has become a major issue that needs to be addressed effectively. these challenges, therefore, need innovative solutions. however, taking the capacity of the regulators to encourage or inhibit the innovations, it is important to create policy environment that meets the expectation of the consumers for a safe and sound payment systems and encourages participants of the payment system to sustain their business interest. reference of pfmi for the retail payment systems : 7 ’ s framework it is appropriate to ask the question whether and how the 24 new principles for financial market infrastructure would be relevant for the retail payment systems. although at the current juncture retail payment system may not threaten the financial stability, the segment requires greater monitoring and oversight to keep the public confidence in the system. any breach of trust will prove disastrous for the payment systems leading to macroeconomic concerns, particularly in emerging countries like india where several initiatives have been taken or are on the anvil to further financial inclusion by leveraging developments in retail payment system. one could possibly suggest a “ pfmi light ” framework