RBI unveils framework for retail payments entity

• The Reserve Bank of India (RBI) released a framework for setting up of a pan-­India umbrella entity for retail payment systems. 
• This entity, to be incorporated under the Companies Act, 2013, would need to focus on retail payments systems
• The umbrella entity will set up, manage, and operate new payment systems in the retail space comprising ATMs, white-label PoS, Aadhaar­based payments, and remittance services.
• The entity will operate clearing and settlement systems for participating banks and non­banks, identify and manage relevant risks, monitor retail payments system developments and related issues in the country, and internationally. 
• It will be the responsibility of the entity to frame necessary rules and the related processes to ensure that the system is safe and sound and that payments are exchanged efficiently. The entity will be permitted to participate in Reserve Bank’s payment and settlement systems, including having a current account with Reserve Bank, if required. The formation of the umbrella entity has been authorized under the Payment and Settlement Systems Act, 2007.

Background

• RBI as the regulator of payment and settlement systems in the country sets the necessary regulatory framework to ensure that different types of payment systems operate in a safe, secure, and efficient manner to meet the needs of varied segments of society. Reserve Bank authorizes Payment Systems in terms of powers vested with it by the Payment and Settlement Systems Act, 2007 (PSS Act).
• For many years in India, banks have been the traditional gateway to extend payment systems (to make a payment from one entity to another through cheques, RTGS, NEFT, etc). Over some time, given the demand for varied payment services and in keeping with the fast pace of technological changes, non-bank entities have also been permitted access to the payment space. These non-banks are co-operating, as well as, competing with banks, either as technology service providers to banks or by directly providing retail electronic payment services. Reserve Bank has been issuing guidelines for various payment systems and grants authorization to non-banks for setting up and operating payment systems. It may be noted that licensed banks also need to obtain specific permission from RBI for setting up and operating a payment system. This is because banking function is different and operating a "payment system" (which facilitates payment from one entity to another) is different. 

National Payments Corporation of India (NPCI)

• National Payments Corporation of India (NPCI), is such a non-bank payment system operator authorized by RBI to operate the following payment systems under the PSS Act 2007.
• Immediate Payment System (IMPS)
• Aadhar Enabled Payment System (AEPS)
• Rupay Cards
• National Automatic Clearing House (ACH)
• Linking of ATMs across India (some other operators are also involved)
• National Electronic Toll collection (It provides an electronic payment facility to the customer to make the payments at national, state and city toll plazas by identifying the vehicle uniquely through a FASTag)
• National Financial Switch
• NPCI is a ‘Not for Profit’ company where 51% stake is owned by public sector banks.
  
• RBI wants to give permission/license to other private entities to operate the 'Retail Payment System' in India like NPCI under the PSS Act 2007. The entity should be registered under the Company's Act 2013 either as a "for-profit" OR "Not for profit" company. By creating more retail payment operators, RBI wants to create competition (to NPCI) so that better systems and cost-effective and innovative systems should evolve.

Retail Payment Operator

The new "Retail Payment Operator" (there can be more than one such entities) will:

• Set-up, manage and operate new payment systems in the retail space comprising of but not limited to ATMs, White Label PoS; Aadhaar based payments and remittance (just means the transfer of money and nothing specific about abroad) services; newer payment methods, standards, and technologies; monitor related issues in the country and internationally; take care of developmental objectives like enhancement of awareness about the payment systems.
• Operate clearing and settlement systems for participating banks and non-banks; identify and manage relevant risks such as settlement, credit, liquidity and operational and preserve the integrity of the system(s); monitor retail payment system developments and related issues in the country and internationally to avoid shocks, frauds, and contagions that may adversely affect the system(s) and/or the economy in general.
• The entity is also expected to interact and be interoperable, to the extent possible, with the systems operated by NPCI. It is also expected to interact and be interoperable, to the extent possible, with the systems operated by NPCI.

Source: The Hindu