Pssbooklet PDF

Payment and
Settlement Systems in India
Journey in the
Second Decade of the
Millennium
20 10
20
.
Foreword
"Take up one idea. Make that one idea your life; think of it; dream of it;
live on that idea. ... This is the way to success." - Swami Vivekananda1.
This Booklet is a narrative of how the carefully thought out steps taken
by the Reserve Bank of India (RBI) have resulted in transforming India into
a country riding the crest of a wave in the evolution of digital payments.
Chief among those steps was the conceptualisation and establishment of
institutions - Institute for Development and Research in Banking Technol-
ogy (IDRBT), National Payments Corporation of India (NPCI) and Clearing
Corporation of India Limited (CCIL) - that laid the foundation of India's
payment systems. The bouquet of digital payment products that is now
available in the country and that enriches the consumer experience with
choices, convenience and confidence in the digital payment ecosystem,
owes a lot to these institutions.
Over the course of this journey, significant upgradation was achieved by

way of enhancement of acceptance infrastructure, boost to financial
inclusion and adoption of digital modes for Government payments backed
by the national identity authentication, Aadhaar framework. To win the trust
of customers, an expanding payment system was overlaid with a reliable
supervision and settlement mechanism. Interoperability among payment
systems facilitated unparalleled ease of transactions while robust customer
protection measures have made India's retail payment system one of the
safest in the world. The journey has only just begun, but India is already
seen as a player at the global forefront in the domain of digital payments.
This Booklet, which focusses on the decade 2010-20, gives the legal and
regulatory environment underpinning the digital payment systems, the
various payment system choices available to consumers, extent of usage
and so on. The Booklet also takes up a self-analysis of the domains
explored and territories not charted through the course of this journey. To
place things in perspective, an exercise was undertaken in 2019 to
benchmark India's payment systems with 20 other countries.
1
Karma-Yoga: On Life, Work and Spirituality, by Swami Vivekananda
While realising that 'well begun is half done', RBI is mindful of the
challenges ahead. Various initiatives are underway to realise India's vision
on payment systems. RBI seeks to usher in a payment ecosystem that
enables safe, quick and affordable digital payments to everyone across the
length and breadth of the country as well as in the universe of cross-border
payments and transactions.
I congratulate the efforts of the Department of Payment and Settlement

Systems of RBI in bringing out this comprehensive Booklet which can even
serve as a reference document for those interested in following payment
system developments in the country.
Shaktikanta Das
Governor
Reserve Bank of India
Foreword
Payment systems are not only the lifeline of an economy but are
increasingly being recognised as a means of achieving financial inclusion
and ensuring that economic benefits reach the bottom of the pyramid. In
view of the above India has enacted a separate law for Payment and
Settlement Systems which has enabled an orderly development of the
payment eco-system in the country. The first Payment and Settlement
Systems Vision announced by the Reserve Bank in 2001, and successive
vision statements every three years later, have made sure that payment
and settlement systems receive focussed attention.
The present state-of-the-art payment systems that are affordable, accessible,

convenient, efficient, safe and secure are a matter of pride for the nation.
The systems and efforts have not only resulted in a rapid growth in digital
payments, but have also led to unique innovations. Small steps taken over
time have transformed into giant strides in respect of payment and
settlement systems and retail payments space.
To document these achievements for the wider public, the Reserve Bank
has prepared this Booklet which contains payment systems managed by
the country and developments in this sphere in the last one decade. The
Booklet attempts to cover all payment systems in India, their enablers,
institutions that run these systems and supporting infrastructure acceptance.
The challenges encountered, and prospects are also touched upon. I
congratulate the Department of Payment and Settlement Systems for
undertaking this initiative.
B. P. Kanungo
Deputy Governor
Foreword
The decade of 2010-20 can be termed as the decade of payments in India.
There have been many defining moments that transformed the payments
ecosystem of the country and attracted international recognition.
During the decade, the country has witnessed the introduction of innovative
payment systems, entry of non-bank players, and a gradual shift in the
customer behaviour from cash to digital payments. We have an unique
secure and interoperable Unified Payments Interface (UPI) for retail
payments, biometric based as well as the QR code-based payments.
Throughout this journey, the Reserve Bank has played the role of a catalyst
and facilitator, regulator and supervisor, as the occasion demanded,
towards achieving its public policy objective of developing and promoting
a safe, secure, sound and efficient payment system. Reserve Bank has
always fostered innovation and growth of payment and settlement systems
without deviating or losing its focus towards constant improvement in
safety, security, soundness, efficiency and effectiveness. All these efforts
have resulted in availability of a wide choice of 'anytime and anywhere'
interoperable payment systems for the common man at reasonable rates.
Reserve Bank had earlier come up with a Booklet on its payment systems
in the years 1998 and 2008. Building on the earlier exercises, this Booklet
is an attempt to spread awareness about the various developments around
payments landscape in the country during the last decade. It gives an
overview of the products, players, infrastructure and institutions in the
payments ecosystem along with regulatory measures of Reserve Bank. It
also offers the reader a peek into the future of the payment systems in
the country. Efforts of the team in the Department of Payment and
Settlement Systems to bring out this concise yet comprehensive Booklet
deserve appreciation.
T. Rabi Sankar
Executive Director
I N D E X
Chapter Page
Topic
Number Number
Preface (i)
1 Introduction 1
2 Institution Building - IDRBT, IFTAS and CCIL 7
3 Institution Building - Umbrella Organisation 11
4 Paper Clearing 14
5 Digital Payments Enablers 18
6 Standards and Identifiers 22
7 Digital Payments 26
8 Acceptance Infrastructure 42
9 Government Payments 49
10 Bill and Toll Payments 51
11 TReDS 54
12 Cross-border Payments 55
13 Third Party Payment Providers 59
14 Settlement Systems 61
15 Settlement Processes 64
16 Approach to Regulation 67
17 Governance in Reserve Bank 69
18 Access Criteria 72
19 Supervision 77
20 Customer Protection, Convenience,
Complaint Redress 85
21 Encouraging Innovation 95
22 Domestic, Regional and International
Co-ordination 99
23 Benchmarking India's Payment Systems 104
24 Challenges 106
25 The Road-map 109
26 Conclusion 113
Appendix 1 Chronology of Major Milestones 115
Appendix 2 Payment System Data-2010, 2015 and 2020 120
Appendix 3 Acronyms Used 121
Appendix 4 References 126
.
Preface
India has been enjoying a healthy evolution of payment systems over
the past three decades. This has been the result of the measured
road maps periodically adopted by the Reserve Bank, as a developer
in the initial years and as a catalyst and facilitator in later years. Though
the advancements in the payment systems were gradual in the early
days, the two decades of this century have truly witnessed a revolution.
From barter system to Unified Payments Interface (UPI), payment

systems in India have come a long way. Our payment systems are
not only best-in-class, but also offer a bouquet of systems suited to
serve every Indian. Proactive regulation and supervision with safety
and customer centric initiatives have been the hallmark of develop-
ments in the retail payments systems arena and it is a proud feeling
to be recognised as a leader across the globe in this sphere.
Reserve Bank has been continuously setting goals and targets in the
form of Payment Systems Vision document, every three years since
2001, presenting the road map for improving the payment systems of
our nation. Empowering every Indian with access to a bouquet of e-
payment options that is safe, secure, convenient, quick and affordable
is Reserve Bank's Payment System's Vision for 2019-2021.
This Booklet takes us through the amazing journey of payment systems

in India in the previous decade. A journey which has transformed the
way banking is done in the country today. As Brett King, the author
of 'Bank 4.0', rightly puts it: "Banking is no longer somewhere you
go, it's something you do."
I take this opportunity to convey my kudos to the thought leaders in

Reserve Bank, earlier and present, for nurturing and guiding payment
system development. I and my team remain committed to continue this
catalytic and facilitating role for enabling innovations in payment
systems, while unyieldingly performing our responsibilities as regulator
and supervisor. We rededicate ourselves to pursue this mission
[i]
relentlessly and place India at the highest pedestal amongst all
countries in payments systems space for years to come. It has been
my privilege and pleasure to be part of this memorable journey towards
excellence.
P. Vasudevan
Chief General Manager
Department of Payment and Settlement Systems
.
Chapter 1
Introduction
1.1 The need for payments and settlements is as old as the need for goods
and services. The earliest known Payment and Settlement System (PSS)
was the barter system facilitating exchange through goods and / or
services. With the concept of money, people progressed to settling their
economic transactions using currency notes and coins. The evolution of
the banking system and advent of bank accounts led to an easy and safe
method for making payments by transfer of money through bank accounts.
This transaction required a payment instrument, and cheque emerged as
the primary instrument for payment transactions. Thus, started the tale of
payment systems.
1.2 An efficient payment system promotes market efficiency and reduces

the cost of exchanging goods and services. By the same token, its failure
can result in loss of confidence in the financial system and in the very use
of money.
1.3 In India, the oversight of the payment systems is entrusted to the

Reserve Bank of India (RBI) where the Board for Regulation and Supervision
of Payment and Settlement Systems (BPSS), chaired by the Governor,
RBI, spearheads this responsibility. The creation of a new department viz.,
Department of Payment and Settlement Systems (DPSS) by RBI in the
year 2005 to focus exclusively on payment and settlement systems, and
subsequent legislation of the Payment and Settlement Systems Act, 2007
(PSS Act) set the stage for a new era in the history of payment systems
in the country.
Payment and Settlement Systems Act, 2007
1.4 A sound and appropriate legal framework is a necessary requirement

for efficient payment systems. The legal environment should include (i)
laws and regulations of broad applicability that address issues such as
insolvency and contractual relations between parties; (ii) laws and regulations
that have specific applicability to payment systems (such as legislation on
electronic signature, validation of netting, and settlement finality); and (iii)
Payment and Settlement Systems in India | 1

the rules, standards, and procedures agreed to by all participants of a
payments system. Considering the importance of regulation for the
development and orderly functioning of not only financial services but also
payment systems, the Payment and Settlement Systems Act was legislated
in 2007. India is one of the few countries that has a specific payment
systems law to "..provide for the regulation and supervision of payment
systems in India and to designate RBI as the authority for the purpose and
for matters connected therewith or incidental thereto." RBI's scope for
regulation extends to the whole gamut of payment systems and instruments
as also services provided by banks and non-banks.
1.5 In terms of Section 4 of PSS Act, no person other than RBI can
commence or operate any payment system in India unless authorised by
it. RBI has since authorised various Payment System Operators (PSOs)
such as CCIL (financial market infrastructure - central counterparty), NPCI
(retail payments organisation), card payment networks, cross-border in-
bound money transfers entities, ATM networks, PPI issuers, Instant Money
Transfer operators, TReDS platform providers and Bharat Bill Payment
Operating Units (BBPOUs) to operate payment systems in the country.
PSS Act and the Payment and Settlement Systems Regulations, 2008
framed thereunder, provide necessary statutory backing to the RBI to
exercise oversight over the payment and settlement systems in the country.
Components of Payment and Settlement Systems
1.6 The Bank for International Settlements' (BIS) Committee on Payments

and Market Infrastructures (CPMI) defines payment systems transactions
to include the total transactions undertaken by all payment systems in the
country. Considering this definition, payment systems transactions in India
would comprise of transactions processed and settled through (a) Paper
Clearing [Magnetic Ink Character Recognition (MICR), Non-MICR, Cheque
Truncation System (CTS), Express Cheque Clearing System (ECCS)]; (b)
Bulk electronic transaction processing systems like Electronic Clearing
Service (ECS), with its variants Regional ECS and National ECS; National
Automated Clearing House (NACH) - Debit and Credit; (c) Card Payments
(Debit, Credit and Electronic); (d) Large Value [Real Time Gross Settlement
2 | Payment and Settlement Systems in India

(RTGS)]; (e) Retail [National Electronic Funds Transfer (NEFT)]; (f) Fast
Payments [Immediate Payment Service (IMPS), Unified Payments Interface
(UPI)]; and (g) e-Money [Prepaid Payment Instrument (PPI) Cards and
Wallets). Except (a) above and cash transactions, all other payments
constitute digital transactions.
1.7 In addition to the above payment and settlement systems, RBI has also
institutionalised a well-established clearing and settlement system for
Government Securities.
1.8 The digital revolution is taking the world by storm and no other area
has witnessed a metamorphosis as has been seen in the payment and
settlement arena, resulting in a myriad of payment options for the
consumer. In the last 10 years, India has witnessed an exponential growth
in payment systems and a significant shift in payment preference.
1.9 The shift in payment preference in the last 10 years is evidenced by

the fact that the volume of paper clearing, which comprised of 60% of total
retail payments in the financial year (FY) 2010-11, shrunk to 3% in the FY
2019-20. This striking shift in payment preference has been due to the
creation of robust electronic payment systems such as RTGS, NEFT and
ECS that has facilitated seamless real time or near real time fund transfers.
In addition, this decade has witnessed introduction of innovative payment
systems that provide instant credit to the beneficiary, with the launch of
fast payment systems such as IMPS and UPI that are available to
consumers round the clock for undertaking fund transfers, and introduction
of mobile based payment systems such as Bharat Bill Payment System
(BBPS), PPIs to facilitate payment of bills and purchase of goods and
services and National Electronic Toll Collection (NETC) to facilitate electronic
toll payments. The convenience of these payment systems ensured rapid
acceptance as they provided consumers an alternative to the use of cash
and paper for making payments. The facilitation of non-bank FinTech firms
in the payment ecosystem as PPI issuers, BBPOUs and third-party
application providers in the UPI platform have furthered the adoption of
digital payments in the country.

Table 1: India's payment systems
1.10 The advent of innovative electronic payment systems that leverage

on technology which can be used through internet and mobile, has led to
electronic payment systems dominating the retail payment space with
around 61% share in terms of volume and 75% share in terms of value
during the FY 2019-20. Increased mobile and internet penetration in the
country has resulted in significant shift towards use of mobile / internet-
based payment systems for effecting payments for purchase of goods and
services. Introduction of lightweight acceptance infrastructure (QR codes)
has further facilitated the use of mobile based payments across the
country. Data shows that low value payments dominate the volume /
turnover, and products that afford real time, instantaneous transfers are
the most preferred modes of payment.
Table 2: Share of payment systems

Source: RBI Data
1.11 The last decade, therefore, has seen an explosion of payment

systems with consumers having multiple options to choose from. In the
approach towards payment system development in the country, safety and
security has been of paramount importance to RBI; followed by efficiency,
accessibility, affordability and convenience. Payment systems have always
been regarded as a public good and an ancillary activity of banks which
can be leveraged as a base to provide various other services. Given the
sizeable populace of the country, the endeavour is to make the payments
space a large-volume, low-average-value and low-cost game for sustained
presence and continuance.
1.12 A study on payment systems is incomplete without touching some

of the institutions which contributed to the efficacy and efficiency of the
systems, notable among them being the Institute for Development and
Research in Banking Technology (IDRBT) and the National Payments
Corporation of India (NPCI) which have contributed to making India's
payments ecosystem the showpiece that it is today. It is with great foresight
that RBI not only established these institutions but also nurtured them till
they were able to stand on their feet.1
1.13 This booklet is the third in the series of booklets on payment systems
published by RBI. The first was taken out in 1998 and the second one in
2008. This booklet covers the journey of India's payments journey during
1
"We have been focusing our attention on developing the payment systems in the country for the past
thirty five years, starting from the computerisation of clearing houses way back in early 1980s. Thanks
to all these years' efforts, today we have a vibrant, innovating, efficient and secured payment ecosystem
in the country."
(Shri R. Gandhi, former Deputy Governor, RBI, 2015)

the past ten years. Major announcements during the ten year period are
chronicled in Appendix 1. The trends in the payment systems in the past
ten years are brought out in Appendix 2. In addition, the acronyms used
through this booklet are referenced in Appendix 3.
_______

Chapter 2
Institution Building
Institute for Development and Research in Banking Technology,
Indian Financial Technology and Allied Services and
Clearing Corporation of India Limited
Institute for Development and Research in Banking Technology

(IDRBT)
2.1 During the initial reforms in the Indian banking and financial sector, a
need was felt to develop an institute of higher learning, which would also
provide information technology support to banks and financial institutions.
Dr. Rangarajan Committee reports in the years 1984 and 1989 recommended
computerisation of banking operations at various levels. Subsequently, a
committee on "Technology Upgradation in the Payment Systems" was
constituted in 1994 which recommended setting up of an Information
Technology Institute for Research and Development as well as Consultancy
in the application of technology to the banking and financial sector of the
country. This led to the birth of IDRBT on June 10, 1996 as a Society under
the Society Registration Act, with the objective to spearhead technology
absorption in the banking and financial sector.
2.2 In its initial years, IDRBT primarily focused on developing and

managing technology infrastructure for the banking and financial sectors.
It developed the Indian Financial Network (INFINET), the Structured
Financial Messaging System (SFMS), the Indian Banking Community
Cloud (IBCC), the National Financial Switch (NFS), etc. These systems are
the backbone around which PSS in India rally even today. IDRBT is also
the Certifying Authority for digital certificates. Research and academic
activities at this institute not only engendered the technical know-how for
creation of these services, but also helped in training and updating skills
in the banking sector.
2.3 IDRBT has recently undertaken focused initiatives on major areas of

research on the systemic requirements of the banking system and has set
up 6 state-of-the-art Research Centres for aiding and promoting research

and development work in the areas of Analytics, Cyber Security, Mobile
Banking, Affordable Technologies, Cloud Computing and Payment Systems.
The Research Centres are being constantly upgraded with latest systems,
devices and tools to keep pace with the ever-changing technology trends.
IDRBT has also emerged as a premier institution for imparting training to
banks in the payments arena.2
Indian Financial Technology and Allied Services (IFTAS)
2.4 RBI had constituted an External Expert Review Committee (EERC),

headed by its former Governor, Dr. C. Rangarajan for evaluating the
activities of IDRBT and re-defining its role and suggesting a roadmap for
the future. The EERC, which submitted its report in July 2009, recommended
that 'to function as a primary institute of excellence in research and
development in banking technology, IDRBT should shed its functions of
providing various services by hiving off these services.' This led to the
creation of IFTAS as a wholly owned subsidiary of RBI.
2.5 Accordingly, IFTAS took over INFINET, SFMS and IBCC services from
IDRBT and commenced operations with the aim of providing uninterrupted
24x7 high-quality IT-related services to the Indian banking and financial
sector.
2.6 IFTAS was created with the mandate to provide critical infrastructure
services to RBI, banks, cooperative societies and other financial institutions.
IFTAS now provides the following services:
(i) INFINET, the communication backbone of the Indian banking and

financial sector.
(ii) SFMS, a robust messaging platform used in the RBI operated

payment systems, i.e., RTGS and NEFT.
2
"India can boast of many institutional firsts in the financial sector that became the toast of the world. CCIL,
NPCI and IDRBT come to my mind readily. Each of them had played stellar roles. The earliest and the
most important one among these was the IDRBT that with its unique mandate laid the foundation for
digitisation of the financial sector in India by providing a safe and secure India network on par with
international standards and continues to be the backbone infrastructure of the Indian financial sector."
- (Shri G Padmanabhan, former Executive Director, RBI, 2019)

(iii) IBCC, a specialised community cloud for the banking and financial
sector.
(iv) Global Interchange for Financial Transactions (GIFT), a one-stop

integrated PSS providing an end-to-end straight-through processing
(STP) of payment messages (inter-bank transactions) between the
source bank & destination through the Central Bank.
Clearing Corporation of India Limited (CCIL)
2.7 CCIL is a Financial Market Infrastructure (FMI), authorised by RBI

under the PSS Act, to operate various payment systems and function as
a Trade Repository (TR) for specified instruments. CCIL has been granted
the status of a Qualified Central Counterparty (QCCP) in the Indian
jurisdiction.
2.8 CCIL was setup in April 2001 to provide guaranteed clearing and
settlement for transactions in money, government securities, forex and
derivative markets. CCIL also provides non-guaranteed settlements for
rupee interest rate derivatives and cross currency forex transactions
(through CLS Bank). CCIL is, therefore, authorised to operate the following
payment systems, (i) securities (outright, repo and tri-party repo), (ii) forex
[USD-INR (cash, tom, spot) and cross currency CLS], (iii) forex forward
(USD-INR), and (iv) rupee derivatives [rupee interest rate swaps (IRS) and
forward rate agreements (FRA)].
2.9 CCIL acts as a TR for all over the counter (OTC) transactions in the
forex, interest rate and credit derivatives segments. CCIL also acts as a
TR for (i) secondary market trades in Certificates of Deposit / Commercial
Papers (ii) market repo / reverse repo transactions in Corporate Bonds /
Certificates of Deposit / Commercial Papers / NCDs of original maturity
of less than one year and (iii) primary market issuances of Commercial
Paper by the respective Issuing and Paying Agent (IPA).

2.10 CCIL also acts as a reference point for important benchmarks used
by the market under the aegis of the benchmark administrator, Financial
Benchmarks India Limited (FBIL) like MTM prices, ZCYC rates and Spot
rates.
2.11 The operations of CCIL are covered in detail in Chapter 14.
_______

Chapter 3
Institution Building - Umbrella Organisation

National Payments Corporation of India (NPCI)
3.1 RBI, in its Vision for Payment Systems 2005-08, envisioned the need
for an umbrella organisation for all the retail payment systems in the
country, with the objective of optimally using the resources through
consolidation of existing infrastructure and building new infrastructure to
enable national reach in a seamless manner. It envisaged constituting an
umbrella organisation to have a robust technology platform and provide
service of high quality to customers at an affordable price structure.
3.2 Thus, NPCI was set up, with guidance and support of RBI and the
Indian Banks' Association (IBA), as an umbrella organisation for retail
payments system in India. It was incorporated in December 2008 as a
Section 25 company (not-for-profit company) under Companies Act, 1956
(now Section 8 of Companies Act, 2013) with the aim to operate for the
benefit of all member banks and their customers, create infrastructure for
operating pan-India systems with high availability and scalability to process
increasing volumes of retail electronic payments, etc. India is one of the
few jurisdictions to have attempted this and over the period of 10 years,
the share of transactions handled by NPCI is a testimony to the success
and criticality of this initiative, probably the first of its kind across the globe!
3.3 NPCI started with 10 core promoter banks (State Bank of India, Punjab
National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank
of India, ICICI Bank, HDFC Bank, Citibank N. A. and HSBC) as shareholders.
In the year 2016, the shareholding of NPCI was broad-based to include
more banks representing all sectors. As on date, the number of shareholders
of NPCI is 67, comprising 11 public sector banks, 18 private sector banks,
5 foreign banks, 10 cooperative banks, 7 Regional Rural Banks (RRBs),
4 Small Finance Banks (SFBs), 2 Payment Banks (PBs) and 10 PSOs.
3.4 In December 2013, NPCI was entrusted with the task of operating CTS
on behalf of RBI. It also took over from IDRBT in December 2009, the task
of managing NFS which operated an ATM network having 37 members with

50,000 ATMs. It has grown to a network of 112-member banks connecting
over 2.3 lakh ATMs as at end-December 2020. These two activities are
the main revenue source for NPCI on the strength of which it has been
able to expand its operations and invest in innovative ideas and systems.
3.5 The retail payments space has further developed and matured with a
variety of systems introduced and operated by NPCI. With the aim of
touching lives of every Indian, NPCI has rolled out a variety of innovative
retail payment products viz., IMPS, RuPay card scheme, UPI, NACH,
Aadhaar-enabled Payments System (AePS), Aadhaar Payments Bridge
System (APBS), NETC, *99# (USSD based) and BBPS. Further, NPCI's
alliance with international network partners (Discover Financial Services,
Japan Credit Bureau and China Union Pay) has paved the way for
international acceptance of RuPay.
Table 3: Progress made by NPCI in the retail digital payments space
Note - *CTS operations were handed over to NPCI in 2013
3.6 Widespread adoption of NPCI's retail payment products has made

NPCI truly an umbrella organisation for retail payment systems. NPCI's
retail payment products have also provided an impetus to RBI's vision of
a 'less-cash' society and of empowering every Indian with access to a
bouquet of e-payment options that is safe, secure, convenient, quick and
affordable. NPCI has been yet another successful experiment and experience
in the Indian payment systems space.

NPCI International Payments Limited
3.7 Over the years, the retail payment systems of NPCI have gained
widespread acceptance across the country and generated enormous
interest from other jurisdictions as well. In order to bestow undivided
attention to the global outreach of NPCI payment systems, a subsidiary,
viz., NPCI International Payments Limited (NIPL), was established in April
2020. NIPL is tasked with the responsibility of exporting, in consultation
and co-ordination with RBI, NPCI's indigenously developed offerings to
foreign markets. To begin with, the primary focus of NIPL is the
internationalisation of RuPay and UPI.
_______

Chapter 4
Paper Clearing
4.1 The Banking Regulation Act, 1949 defines "banking" as the accepting,
for the purpose of lending or investment, of deposits of money from the
public, repayable on demand or otherwise, and withdrawal by cheque,
draft, order or otherwise. Payment by means of cheque is, therefore,
embedded in the very definition of banking. Paper-based payment systems
historically occupy an important place in any country's payment landscape
as initially, apart from cash, cheque payment was the only available
alternative. 'Clearing' of cheques required a centralised payment and
settlement system, which facilitated payments made through cheques by
netting through participating member banks, without going through the
tedious task of individually settling each and every cheque / instrument.
Magnetic Ink Character Recognition (MICR)
4.2 The cheque clearing systems have evolved from manual clearing
system to MICR clearing systems in mid 1980s, which brought in
automation, standardisation and efficiency in cheque clearing process.
MICR instruments with Magnetic Media Based Clearing Systems (MMBCS)
technology facilitated carrying out of 'clearing' activity electronically,
wherein clearing data was processed electronically with physical cheques
exchanged alongside. To further ease up the process, High Value Clearing
(HVC) was introduced during the eighties for clearing cheques of value
of Rupees one lakh and above. This clearing was available at select
large centres in the country till it was discontinued in the year 2009.
4.3 Following implementation of Core Banking Systems (CBS) in banks,

Speed Clearing was launched in the year 2008, for local clearance of
outstation cheques drawn on core-banking enabled branches of banks,
which drastically reduced the turnaround time for clearing of outstation
cheques.
Cheque Truncation System (CTS)
4.4 CTS enables use of the image of cheque for payment processing
thereby eliminating the need for physical movement of cheques, with

concomitant benefits of reduced turnaround time for clearing of cheques,
particularly more so in case of outstation cheques. During the year 2008,
RBI conducted a pilot study in New Delhi on the possibility of introducing
CTS. Based on the learnings and outcomes of this pilot study, in February
2010, CTS-2010 standards were framed to enhance and standardise the
security features on cheque forms. Mandatory features were specified
including paper & watermark (at manufacturing stage), void pantograph
and bank's logo with UV ink (at printing stage), field placements of a
cheque, colours and clutter-free background, prohibiting alterations /
corrections on cheques, pre-printed account number, etc. Apart from these,
banks were given the leeway to include suitable desirable features provided
the mandatory security features are not compromised. Banks were advised
to issue only CTS-2010 standard cheques henceforth. After the successful
run in New Delhi, CTS was introduced in the rest of the country, at Chennai
in September 2011, to cover CTS clearing in southern and eastern zones,
and Mumbai in April 2013 covering the western zone, with New Delhi
covering CTS clearing in the northern zone.
4.5 In CTS, the presenting bank / collecting bank captures the MICR
data and scans the images of the cheque as per CTS specifications
and instruments are cleared on the basis of these digitally signed encrypted
images. To facilitate CTS clearing, amendments were made to the
Negotiable Instruments Act, 1881 to legalise electronic movement of
cheques, retention of cheque by the presenting banker and placing the
onus of verifying prima facie genuineness of the cheque to be truncated
on the bank receiving the payment.
4.6 All sixty-six MICR centres operating across the country were subsumed
in grid-based CTS clearing and MICR clearing was discontinued with
effect from July 2014. As on date, all 1219 non-MICR clearing houses
have been migrated to CTS.
4.7 The concept of a panel for resolution of disputes (PRD) for speedy
and timely resolution of disputes between member banks was drawn up
by RBI in September 24, 2010 to handle disputes. Each grid has its
PRD; the President of the Grid is ex-officio chairman of PRD who is
assisted by four other members representing member banks. The scope

of the dispute resolution mechanism is limited to interpretation, scrutiny
and resolution of disputes within the ambit of rules, regulations, operational
and procedural guidelines relating to the payment products, various
instructions issued by the system providers, instructions and directions
issued by RBI. The resolution given by PRD is binding on the disputing
banks, unless an appeal is made to the Appellate Authority against
judgement of PRD.
4.8 To further augment customer safety in cheque payments and reduce

instances of fraud occurring on account of tampering of cheque leaves,
a mechanism of Positive Pay for all cheques of value of ` 50,000 and
above was announced in September 2020. Under this mechanism,
cheques will be processed for payment by the drawee bank based on
information passed on by its customer at the time of issuing the cheque.
In the Centralised Positive Pay System (CPPS), customers, after issuance
of cheques will provide details of issued instrument/s to their banks. The
data received will be uploaded in NPCI's CPPS system by the member
bank. During the presentment, cheques presented will be validated by
clearing house against CPPS data base. If any difference is observed
while matching results, the clearing house will put a specified flag with
the cheque data. Since CPPS will be the central repository for all
participating banks, validation and provision of the flag at the time of
clearing process will enable banks to save time in clearing process. It
will be an add-on facility to contain any occurrence of fraud. The facility
was implemented from January 01, 2021.
4.9 To conclude, India has a fast and efficient cheque processing system.
Standardisation of cheque forms and the cheque clearing system in the
country made it the most efficient and best in the world in terms of its
T+1 clearing and settlement cycle across the length and breadth of the
country. Cheque truncation eliminated the associated cost and time for
movement of physical cheques, reduced the time for collection and brought
in efficiency to the entire activity of cheque processing.

Table 4: Growth and share of paper clearing
Source: RBI Data
_______

Chapter 5
Digital Payments Enablers

5.1 RBI has always been the primary enabler of digital payments in India.
From conceptualisation to execution, investment in knowledge and technology
for payment systems involving large scale capital expenditure {MICR, CTS,
ECS, large value payments (RTGS), retail payments (NEFT), etc.}, RBI has
donned many hats, that of owner, operator, catalyst, regulator, et al.
5.2 India has followed the "bank-led" model with banks at the fore-front
of payment systems operations, as it was felt that being adequately
regulated, banks were better placed to take the payment systems forward.3
The approach has been to involve banks where float is involved, while non-
banks can participate with fee as their income source. Easy access, swift
absorption / adoption of new technology and innovation, quality of infrastructure,
etc., are crucial elements for ensuring safe and quick payments which help
in building confidence in the payment systems. The dual model followed
in India combined the "trust" that the banks offered with the innovations
of non-banks to upscale digital payments.
Mobile Phones and Internet
5.3 The growth of infrastructure in India has been phenomenal over the
past decade, most notably in the spread of mobile cellular network. The
increasing mobile density and mobile internet users are being leveraged
upon by payment systems providers, both banks and non-banks, to offer
payment services which is accessible over mobile and internet. Along with
internet banking, banks have been offering mobile banking services
through all three channels - short message service (SMS), Unstructured
Supplementary Services Data (USSD) and mobile applications.
3
“Banks and non-banks are partnering to offer the combination of trust and innovation to the Indian
consumer. This "best of both worlds" approach has resulted in tremendous growth in the number of digital
payments, which is expected to continue."
(Shri Shaktikanta Das, Governor, RBI, 2020)

Table 5: Telecom and Internet Subscribers in the country
Source: Telecom Regulatory Authority of India (TRAI) Data
5.4 As at end of October 2020, India had over 115.1 crore wireless
telephone subscribers resulting in a tele-density of 84.90%. The urban tele-
density and rural tele-density was 136.65% and 58.72%, respectively,
which is growing. Increase in smartphone usage has also helped accelerate
the adoption of digital payments. Further, it has led to numerous innovations
in payment mechanisms, such as tokenisation and scanning of Quick
Response (QR) code for making payments using smartphones.
5.5 Internet usage is on the rise in India. While the average Indian, until 2013,
spent more on voice services than on mobile data services, a significant
share of an average mobile bill now pertains to data charges according to
a report by the Internet and Mobile Association of India (IAMAI). As at the
end of October 2020, there were over 71.3 crore and 2.1 crore wireless and
wireline broadband subscribers, respectively. The increase in internet
penetration has facilitated and also accelerated the adoption of digital modes
of payments. With rapidly increasing penetration of 3G and 4G, even in
remote areas, India is witnessing a "Digital Revolution" which is surely but
steadily evolving into a "Digital Payments Revolution." Recent evidence
indicates that Indians consume on an average about 10 GB data every
month.
Bank Accounts
5.6 The number of deposit accounts has grown to 235 crore as at end
March 2020. These include deposit accounts in all commercial banks
including Local Area Banks (LABs), PBs, SFBs, RRBs and Cooperative
Banks in the country. The availability of bank accounts played a key role
in initiating digital payments from / to such accounts.
Aadhaar
5.7 Since its launch in 2009, Aadhaar, a unique identification number has
been issued to over 127 crore individuals across the country. "Aadhaar"
enabled e-KYC (electronic-Know Your Customer) has resulted in an
exponential growth of digital payments in India. The use of Aadhaar has
also been leveraged for authenticating payments to merchants as well as
transactions made through Business Correspondents (BCs). The coverage
of Aadhaar biometric identification has witnessed increased use in Government
to Person (G2P) payments and has helped reduce leakages from the
system by expunging fake beneficiaries. These payment systems have
helped migrate cash payments to electronic form.4 Aadhaar has been
subject to many a legal tussle and its acceptance and use in payments
has seen a see-saw battle over the years. Ironically though, many other
jurisdictions see Aadhaar as a successful experiment. Availability of
biometric identification (fingerprints) with face and iris scans can be
leveraged to push digital payments to exponential levels, of course privacy
and other concerns have to be given due consideration.
Debit and Credit Cards
5.8 In India, credit cards are considered taboo and viewed more as
products for the elite. Over the past 10 years, during the period between
FY 2010-11 and FY 2019-20, the number of debit cards issued increased
from 22.78 crore to 82.86 crore, of which around 30 crore comprised of
RuPay debit cards issued to Basic Savings Bank Deposit (BSBD) account
holders. During the same period, the number of credit cards issued also
increased from 1.80 crore to 5.77 crore. Increase in cards has facilitated
growth in both online and physical PoS terminal based card payments
resulting in an increase in digital transactions.
4
"Digital disruptions will continue to transform the banking sector. Initiatives undertaken by the
Government, the Reserve Bank and the industry have led to a radical shift towards ubiquitous
digitisation, which has provided an impetus to adoption of technology. There is a unique confluence of
several positives like demographic dividend, JAM trinity, etc., that would further support rapid digitisation
of financial services in India."
(Shri Shaktikanta Das, Governor, RBI, 2020)

5.9 Banks issued new cards to comply with the requirement to convert all
existing Magstripe cards to Europay Master Visa (EMV) Chip and Personal
Identification Number (PIN) compliant cards by December 31, 2018 and
subsequently removed deactivated cards from their systems, resulting in
a reduction of debit cards outstanding in the FY 2019-20. The consolidation
of public sector banks also contributed to this reduction.
Table 6: Debit and Credit Cards Outstanding
Source: RBI Data
_______

Chapter 6
Standards and Identifiers

6.1 Standardisation is vital in payment systems as the adoption of
identifiers, uniform standards and formats help eliminate frictions and
inefficiencies in processes. Considering the importance of standards in the
payments space, RBI has prescribed standards for many payments and
has been instrumental in developing a few others. Adoption of these
standards and identifiers have contributed in making the payment systems
the force they are today.
Magnetic Ink Character Recognition (MICR)
6.2 MICR, is a character recognition technology used in the banking

industry to streamline the processing and clearance of cheques and other
documents. MICR code is a 9-digit code printed on cheques using
technology that uniquely identifies the bank and branch participating in an
Electronic Clearing System (ECS). The MICR code comprises, (i) the first
three digits representing the city (city code) - they are aligned with the PIN
code used for postal addresses; (ii) the next 3 digits representing the bank
(bank code); and (iii) the last 3 digits representing the branch (branch
code). Cheques with MICR code are run through MICR reader and sorter
machines, thereby enabling faster processing, sorting and clearing.
6.3 MICR clearing was introduced in India in mid 1980s and this standardisation
aided in automating the cheque clearing process thereby making it efficient.
INdian FInancial NETwork (INFINET)
6.4 In order to upgrade the country's payment and settlement systems, RBI
had taken the initiative of providing a communication backbone in the form
of the satellite based INFINET using VSAT technology to the banking and
financial sectors. The task of designing and developing the communication
network was entrusted to IDRBT. The Closed User Group (CUG) Network
uses VSAT technology and is a Time-division multiplexing (TDM) / Time-
division multiple access (TDMA) network with STAR topology for Data and
with Demand Assigned Multiple Access-Single Channel Per Carrier (DAMA-
SCPC) overlay with mesh topology for voice and video traffic.

6.5 The primary objective of INFINET for the banking and financial sector
was to enhance efficiency and productivity on the one hand and provide
state-of-the-art customer services through innovative delivery channels
such as internet banking, home banking, etc., on the other.
Structured Financial Messaging System (SFMS)
6.6 SFMS, developed by IDRBT, is a domestic messaging standard used

for financial messaging in India. SFMS is an Electronic Data Interchange
(EDI) for banks and it uses INFINET as the communication medium.
Various intrabank applications use the SFMS to improve efficiency and
speed in fund transfer, MIS reports, information reports, etc. SFMS is also
the universal platform for carrying messages pertaining to the centralised
payment systems, thus, meeting the requirements of both retail and large
value fund transfers.
6.7 The basic architecture of SFMS is a 4-tiered with hub connected to

bank gateways, which are connected to bank servers. The bank servers
in turn are connected to offline branches. The SFMS messages from a
bank branch to another bank branch will be delivered via bank gateways
and the hub. Intra-bank messages are however, switched at the bank
gateway level and are not required to be routed to the hub.
Indian Financial System Code (IFSC)
6.8 Indian Financial System Code (or more commonly known as IFSC) is
a 11-digit alpha-numeric code used to uniquely identify a bank and its
branches with (i) the first 4 digits representing the bank; (ii) the 5th
character is zero; and (iii) the last 6 digits representing the specific branch
code. The IFSC is mandatory for fund transfers through various payment
systems (RTGS, NEFT, IMPS), as it helps to identify the destination of the
beneficiary bank and branch.
6.9 Since the implementation of core-banking systems by banks with all

branches connected to a centralised system, RBI now allocates only the
primary IFSC representing bank code, and banks can create / modify /
delete additional IFSCs for their own branches through IFTAS. The updates
are circulated by IFTAS to all member banks to ensure the same reflects
in their systems.

6.10 There are discussions on whether MICR has outlived its purpose of
existence and whether there is scope for two sets of identifiers to exist
- MICR and IFSC.
ISO 20022
6.11 ISO 20022 is a multi-part International Standard prepared by ISO

Technical Committee TC68 Financial Services. ISO 20022 is an emerging
global and open standard for payments messaging. It creates a common
language and model for payments data across the globe. India's RTGS
was the first large value payment system in the world to be implemented
adopting the ISO 20022 standard for messaging.
Society for Worldwide Interbank Financial Telecommunication (SWIFT)
6.12 SWIFT is the world's leading provider of secure financial messaging

services. SWIFT has become the industry standard for syntax in financial
messages. Messages formatted to SWIFT standards are read and processed
by many financial processing systems, whether the message travelled over
the SWIFT network or not. SWIFT standards have been used across the
globe for domestic and international financial messaging services. In India,
the SWIFT messaging standards are used for all cross-border payment
transactions.
Legal Entity Identifier (LEI)5
6.13 LEI is a 20-character, alpha-numeric code (based on the ISO 17442

standard), to uniquely identify legally distinct entities that engage in
financial transactions. It points to key reference information that enables
clear and unique identification of legal entities participating in financial
transactions and also contains information about an entity's ownership
structure and thus answers the questions of 'who is who' and 'who owns
whom'.
5
"Adoption of global best practices to improve market integrity is another important aspect of regulation.
In the last couple of years, the Legal Entity Identifier (LEI) system has been implemented in a phased
manner in all financial markets, including derivative markets regulated by the Reserve Bank, as well
as for bank loans. We believe transparency of financial markets will greatly improve once the LEI system
is used widely."
(Shri Shaktikanta Das, Governor, RBI, September 2019)

6.14 LEI was first made mandatory in India by RBI in June 2017 for all
participants in OTC derivative markets (rupee interest rate derivatives,
foreign currency derivatives and credit derivatives). Following a gradual
approach for adoption of LEIs in India, RBI has further mandated LEIs for
non-derivative markets (government securities markets, money markets
and non-derivative forex markets) and for large corporate borrowers (with
total exposure of more than ` 50 crore to banks). The implementation for
OTC derivative markets and large corporate borrowers has been completed.
In case of non-derivative markets, it was implemented in a phased manner.
6.15 As of now, around 16 lakh LEIs have been issued across the world.
LEIs can be issued to an Indian Company by any Local Operating Unit
(LOU) across the world including Legal Entity Identifier Limited (the local
LOU). As on December 31, 2020, 47,677 Indian Companies have been
issued LEIs (32,008 by LEIL and 15,669 by other LOUs).
_______

Chapter 7
Digital Payments
7.1 6More digital payment options are now available to consumers.
Systems that offer near instant person-to-person retail payments are
increasingly available around the world. Many payment systems in India
now operate 24 hours a day, seven days a week. All these developments
have nudged the consumer towards digital payments because of the
convenience they offer.
Electronic Clearing Service (ECS)
7.2 In the mid-eighties and the early-nineties, RBI took various initiatives
to bring in technology-based solutions to the banking system. One such
initiative introduced in 1990 was the ECS (Credit) scheme for handling bulk
and repetitive payment requirements like salary, interest, dividend payments,
etc. of corporates and other institutions. RBI later introduced an ECS
(Debit) scheme to provide a faster method of effecting periodic and
repetitive collections of utility payments by companies. To consolidate the
ECS system, RBI introduced the National Electronic Clearing Service
(NECS) and the Regional Electronic Clearing Service (RECS).
7.3 With introduction of NACH by NPCI, most of the ECS centres migrated
to it barring a few locations. The last remaining ECS centres were also
fully migrated to NACH by January 31, 2020. The shift from ECS to NACH
was smooth and non-disruptive. With this, the glorious life of ECS and its
variants (RECS and NECS) came to an end, after having served the nation
with distinction for 25 years.
National Automated Clearing House (NACH)
7.4 NACH is a centralised ECS system operated by NPCI. NACH was

formed to consolidate multiple ECS systems running across the country
into one centralised system. It operates both NACH Credit and NACH Debit
payment systems. NACH credit, like ECS credit, is used for making one-
6
"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".
(Shri B. P. Kanungo, Deputy Governor, RBI, 2018

to-many credit transfers, such as payment of dividend, interest, salary,
pension, distribution of subsidies, etc. NACH Debit operates to collect
transaction from many accounts to one destination account e.g., collection
of various utility payments pertaining to telephone, electricity, water and gas
charges, etc. It also facilitates collection of periodic instalments towards
loans, investments in mutual funds, insurance premium, etc.
7.5 The destination banks and accounts are identified based on account
number, IFSC or MICR codes. NACH works on the strength of mandates
given by customers for allowing debit to their accounts at specified
frequency. Apart from paper mandates, paperless mandates can also be
created electronically. The system also identifies the destination account
based on Aadhaar number, through APBS leg of NACH. NACH is the most
popular and prominent mode of direct benefit transfer (DBT) credits to
beneficiaries.
Table 7: Growth of NACH
Source: RBI Data
Card (debit and credit) Payments
7.6 Card payment is an important payment instrument which has replaced

the use of cash at least at retail outlets and e-commerce sites. Like in other
parts of the world, Indian consumers are now frequently using cards for
payments, even for smaller transactions. This is driven, in part, by more
people holding cards and greater availability of PoS terminals. In comparison
to credit cards, debit cards are much more popular in India. Some of the
reasons for this exhibited partiality towards debit cards have been identified
to be, (a) low demand due to Indian households being traditionally oriented

towards savings, rather than credit culture; (b) supply concerns, especially
with majority of the labour force occupied in the unorganised sector and
card issuers less keen to take higher credit risks; and (c) the Indian ethos
to pay for goods and services on purchase instead of running up credit
lines. Yet another cultural observation is, people do not wait for the credit
period to be over; instead pay ahead of the deadline, and in many cases,
even keep a favourable (credit) balance in a credit card account.
7.7 Debt and credit card based payments registered a CAGR of 35% and
33% in terms of volume and value, respectively over the last 10 years. To
encourage usage of cards, card infrastructure is required to be robust,
strong and secure. Mandating the issue and use of only EMV chip and PIN-
based cards has helped build public confidence as it provides more
security than the 'Magstripe only' cards. The adoption of card payments
has also been supported by innovations in the form of contactless
payments and tokenisation technologies.
Table 8: Card Usage Trend in India
Source: RBI Data
Contactless Cards
7.8 One of the innovations in the card payments ecosystem is the use of
contactless technology, which allows cardholders to "Tap and Go". These
cards are becoming increasingly popular. To provide convenience in use of
such cards, RBI permitted relaxation in Additional Factor of Authentication
(AFA) in case of Card Present (CP) transactions using Near Field
Communication (NFC)-enabled EMV Chip and PIN cards for small values
(up to ` 2,000/-). Transactions beyond this limit can be processed in
contactless mode, but with AFA. This relaxation in AFA is, however, not

applicable for ATM transactions (irrespective of transaction value) and Card
Not Present (CNP) transactions, i.e., online transactions. The limit was
subsequently revised to ` 5,000/- effective from January 01, 2021.
National Common Mobility Card (NCMC)
7.9 NCMC was launched in March 2019, as a combo card offering a

combination of a Debit / Credit with a prepaid card where the Debit / Credit
component would be used in the online environment whereas the prepaid
component would be used in the offline environment, wherever offline
payments are permitted. The offline prepaid transactions would be affected
without AFA which was permitted only for the transit payments to begin
with, owing to the fast checkout time required for such transactions. Combo
cards, while offering convenience of not having to carry multiple cards in
your wallet, raise issues relating to uncertain regulatory turf because of
multiple masters (government, RBI, metro operators, et al) which have to
be addressed through coordination.
RuPay Cards
7.10 RuPay is a home-grown card payment network which was introduced

in the year 2012 through NPCI. The drive for a less cash economy in the
wake of demonetisation in 2016 and issue of RuPay cards for BSBD
accounts has increased user acceptance in the interiors of the country
where paying with a card was a novelty just five years back. RuPay has
its popular debit card and its increasingly accepted credit version as well.
7.11 Countries that encourage domestic cards have been observed to be

faster in moving away from cash. India is a late entrant to the domestic
card market and in 2017, the share of RuPay was only 15% of the total
cards issued in India. However, as on November 30, 2020, with about 60.36
crore RuPay cards issued by nearly 1,158 banks, the market share of
RuPay has increased to more than 60% of total cards issued. A significant
proportion of RuPay cards is in the nature of debit cards with only 9.7 lakh
credit cards issued as on November 30, 2020.
7.12 RuPay started its international foray through its acceptance and issue
in Bhutan achieved with the integration of the Bhutan Financial Switch with
NFS. To increase its acceptance around the world, RuPay has tied up with

other payment networks like Union Pay (China), JCB (Japan), NETS
(Singapore), BC Card (South Korea), Elo (Brazil) and DinaCard (Serbia),
in addition to Discover and Diner Club and has thus made its presence
felt across 195 countries across the globe.
Large Value Payment System (LVPS) - Real Time Gross Settlement

(RTGS)
7.13 Large value systems are the most critical component of the national
payment systems as they can generate and transmit disturbances of a
systemic nature to the financial sector. Large value payment systems are,
therefore, systemically important FMIs and critical for smooth functioning
of the financial system.
7.14 India's LVPS, the RTGS system was introduced in March 2004 and
is owned and operated by RBI. RTGS was subsequently enhanced to the
Next Generation-RTGS (NG-RTGS) built on the ISO 20022 standards with
advanced features such as hybrid functionality, liquidity management
functions, future date functionality, scalability, etc. NG-RTGS was a pioneer
in implementing ISO 20022 standards.
7.15 As the name sounds, the transactions settle real-time on a gross basis
in the books of RBI. RTGS also settles Multilateral Net Settlement Batch
(MNSB) files emanating from ancillary payment systems such as CCIL and
NPCI. RTGS accounts for majority of value of transactions settled in Indian
payment systems; average value of a RTGS transaction has always
hovered around a crore of rupee, if not more. RTGS is available for
customer transactions between 7:00 am and 6:00 pm and for inter-bank
payments from 7:00 am to 7:45 pm. RTGS is available round the clock
with effect from December 14, 2020. Implementation of RTGS 24x7 is
expected to facilitate global integration of Indian financial markets, support
India's efforts to develop international financial centers and provide wider
payment flexibility to domestic corporates and institutions.
7.16 Access to RTGS is decided on the basis of the Access Criteria

guidelines issued by RBI. The entities have to comply with specific
requirements like, (i) membership of INFINET / SFMS / domestic SWIFT
network; (ii) maintenance of current account and settlement account with

RBI; (iii) maintenance of Subsidiary General Ledger (SGL) account with
RBI. Membership of RTGS is open to all licensed banks and any other
institution as may be decided by RBI. Members that may not be in a
position to comply with the membership requirements can access the
system through sub-membership route.
7.17 There are primarily four types of participants in RTGS viz. (i) central
bank - exclusively for RBI (ii) regular participant - all types of facilities to
be provided (e.g. banks), (iii) restricted participant - some particular type(s)
of facilities to be provided (e.g. Primary Dealers) and (iv) clearing house
for settlement of MNSB file. Domestically located banks, domestically
located non-banks, domestically located broker-dealer, domestically located
FMIs and branches of foreign banks located in India have direct access
to RTGS in India.
7.18 Access to RTGS is available through any of the three options viz.,
thick-client, Web-API (through INFINET or any other approved network)
and Payment Originator (PO) module. The choice of options for connecting
to RTGS is based on the volumes and business requirements of a member.
7.19 To overcome short-term requirement of funds (during RTGS business

day) for settlement of the transactions, RBI also grants access to intra-
day liquidity (IDL) to RTGS members for settlement of their payment
transactions in RTGS. IDL is invoked automatically for eligible participants
as and when they do not have the required funds in their settlement
account. However, participants are required to ensure availability of eligible
collaterals with RBI. IDL facility availed by a participant is automatically
reversed by the RTGS system on availability of sufficient funds in the
settlement account of the participant (above a threshold level).
7.20 RTGS can be accessed by customers through web-based portal and

proprietary network and transactions can also be initiated physically at
participants' locations. These features make the system robust and have
led to its acceptability and usability. With effect from July 1, 2019, RBI
waived the processing charges and time varying charges levied by it on
banks for outward transactions undertaken using RTGS.

Table 9: Growth and Share of RTGS
Source: RBI Data
National Electronic Funds Transfer (NEFT)
7.21 NEFT, as part of the Centralised Payment Systems (CPS), is a retail

payment system owned and operated by RBI. At the time of its implementation
in November 2005, NEFT was started with only eight member banks. As
at the end of December 2020, NEFT system covers a network of 222
member banks and their 1,70,996 branches. These member banks also
extend NEFT facility to customers through sub-members. There is no floor
or ceiling for the amount that can be transferred in a single transaction,
because of which NEFT has emerged as a popular hybrid payment system,
with average transaction value of approximately ten lakh rupees.
7.22 In alignment with RBI's Payment System Vision 2019-2021, to provide

uninterrupted availability of safe, secure, accessible and affordable payment
systems, NEFT was made available as a round the clock fund transfer
facility without any holiday with effect from December 2019. NEFT is a
straight through process, which operates in 48 half hourly batches 24x7,

and credits are made into destination account based on beneficiary's
unique account number. As laid down in the NEFT procedural guidelines,
the beneficiary's account must be credited, or transaction returned to the
originating bank within 2 hours of settlement of the respective batch. In
case of delays in either credit to the beneficiary account or return of the
transaction to the originating bank, penal interest at repo rate plus 2% has
to be paid to destination account. NEFT has led the way for other payment
systems to operate and is expected to change the entire facet of Indian
banking with multiple products designed around it to cater to the round-
the-clock users.
7.23 In addition to fund transfers, customers of member banks use NEFT

for purchase of goods and services, utility bill payments, payment of
statutory dues, etc. Walk-in customers can also avail of NEFT fund transfer
facility, against cash payment up to ` 50,000/-. NEFT is a unique hybrid
payment system as it carries with it the characteristics of both a retail and
a large value payment system, offering round the clock transfers with no
floor or ceiling on the amounts that can be transferred.
7.24 The member banks maintain current account with RBI which is used
to settle inter-bank settlement obligations. The banks are eligible for intra
day liquidity facility and liquidity support against eligible securities in an
event of shortfall.
7.25 The Indo Nepal Remittance Scheme uses NEFT as the channel for
one-way transfers of funds to Nepal in partnership with State Bank of India
(SBI) and is intended to help Nepali migrant workers in India to send
remittances back home.
7.26 The banks are required to send positive confirmation messages to

the originator conveying successful credit of the transaction.
7.27 With effect from July 01, 2019, RBI waived NEFT processing charges
which was collected from member banks. In addition, with effect from
January 1, 2020 member banks were mandated not to levy any charge on
NEFT transactions initiated online using mobile apps or internet banking
by savings bank account holders.

Table 10: Growth of NEFT
Source: RBI Data
Fast Payments
7.28 Payment systems are becoming faster and more convenient.

Notwithstanding its many features, NEFT is not tagged as a 'fast payment'
system. Fast payments are defined by two key features, speed and
continuous service availability, wherein transmission of the payment
message and the availability of final funds to the payee occur in real time
or near-real time and are available on as near to a 24-hour and 7-day (24/
7) basis as possible. Currently, IMPS and UPI are the two existing 'fast
payments' in India with the latter driving the retail payments volume; the
two systems handle 8.35 crore transactions on a daily basis for value of
` 22,854 crore in December 2020. This excludes the transactions handled
by NEFT, though the debate continues as to why these cannot get included
as a fast payment system since the processing and final settlement in
NEFT is handled on a batch basis with half hourly settlements.
Immediate Payment Service (IMPS)
7.29 IMPS is a 24*7 'fast payments' system that was introduced in 2010.
India was the fourth country after South Korea, UK and South Africa to
introduce such a payment system. The system provides for real time
transfer of funds between the remitter and beneficiary with a deferred net
settlement between banks. The system facilitates push transactions with
a per-transaction limit of ` 2 lakh.
7.30 IMPS is a multi-channel system that can be accessed using mobile,

ATM, internet banking, bank branches, BCs, etc. Besides banks, the
system allows non-bank entities such as PPI issuers to participate and
facilitate remittances from wallets to the recipient bank accounts. Initially,
the system required both the remitter and the beneficiary to be registered
for mobile banking which was inhibiting the growth. Hence, the system was
upgraded to enable remittance of funds by using other parameters such
as account number and IFSC (like NEFT) or by using bank account linked
Aadhaar number.
Unified Payments Interface (UPI)
7.31 UPI is a mobile based, 365x24x7 'fast payment' system wherein users
can send and receive money instantly using a Virtual Payment Address
(VPA) set by the user itself. The unique feature of VPA based transaction
is the secure aspect of UPI architecture as it obviates the need for sharing
account or bank details to the remitter. It supports person to person (P2P)
and person to merchant (P2M) payments and can be used over smart
phone (app based), feature phone (USSD based) and at merchant location
(app based).
7.32 UPI facilitates immediate money transfer through pull and push
payments, merchant payments, utility bill payments, QR code (scan and
pay) based payments, etc. Non-financial transactions such as mobile
banking registration, balance enquiry, etc., can also be carried out using
UPI. It powers multiple bank accounts into a single mobile application of
any participating bank / non-bank Third Party Application Provider (TPAP).
Funds can be transferred using VPA or account number with bank code
(IFSC).
7.33 The framework of UPI comprises of NPCI as network and settlement
service provider, banks as Payment System Providers (PSPs), and as
issuer banks and beneficiary banks; apart from TPAPs such as Google
Pay, Truecaller, WhatsApp, etc. Non-bank PPI issuers have also been
allowed to provide this facility in an interoperable manner to their PPI wallet
holders.
7.34 Transactions are carried out through mobile devices with two factor
authentication using device binding and a UPI PIN as security. The UPI PIN is
encrypted using Public Key Infrastructure (PKI) technology while the transaction

data is stored in encrypted format in app provider's system. The system that
went live in September 2016 with a transaction limit of ` 1 lakh was upgraded
to UPI 2.0 in 2018 with a per transaction limit of ` 2 lakh and a few additional
features to enhance customer convenience, safety and security of transactions.
UPI has grown to be the fastest payment system in the world with many
jurisdictions eager to replicate the system. Given its popularity and acceptance,
there are many innovations possible to extend UPI to desktop browers,
feature phones, offline payments as well as recurring payments.
Table 11: Growth of Fast Payments
Source: RBI Data
Aadhaar Enabled Payment System (AePS)
7.35 AePS is operational since January 2011. It allows online interoperable

transactions at Micro-ATM through the BCs of any bank using Aadhaar
authentication. Under this system, Aadhaar number is used not only to
identify the beneficiary but also to authenticate transactions. The biometric
based authentication is done by Unique Identification Authority of India
(UIDAI) while NPCI does the switching, clearing and settlement of financial
transactions.
7.36 The financial services offered through AePS include cash withdrawal,
cash deposit, balance enquiry, Aadhaar to Aadhaar fund transfer. The non-
financial transactions include - Demographic Authentication, Best Finger
Detection (BFD) and e-KYC.
e-Money
7.37 e-Money is prepaid value stored electronically, which represents the

liability of the e-money issuer (a bank, an e-money institution or any other
entity authorised or allowed to issue e-money in the local jurisdiction) and
which is denominated in a currency backed by an authority. In India, e-
Money is PPIs issued as Wallets and Cards.
7.38 PPIs are instruments that facilitate purchase of goods and services,
remittance facilities, etc., against the value stored in / on such instruments.
Banks and non-bank entities can issue PPIs in the country after obtaining
necessary approval / authorisation from RBI under the PSS Act. The Master
Direction issued in 2017 and subsequent revisions, lays down the eligibility
criteria and the conditions for operation of PSOs involved in the issuance
of semi-closed and open system PPIs in the country.
7.39 In India, PPIs which can be issued are of three types:
a) Closed System PPIs: These are PPIs issued by an entity for facilitating
purchase of goods and services from that entity only. The issuance and
operation of such instruments is not classified as a payment system
and does not require approval / authorisation from RBI.
b) Semi-closed System PPIs: These PPIs are used for purchase of

goods and services, including financial services, remittance facilities,
etc., at a group of clearly identified merchant locations / establishments
which have a specific contract with the issuer (or contract through
a payment aggregator / payment gateway) to accept PPIs as payment
instruments. These instruments do not permit cash withdrawal,
irrespective of whether they are issued by banks or non-banks. To
provide further flexibility, semi-closed PPIs are further classified as,
(i) PPIs up to ` 10,000/- where minimum details of PPI holder are
obtained (minimum-detail PPI); (ii) PPIs up to ` 10,000/- with loading
only from bank account; and (iii) PPIs up to ` 1,00,000/- where know
your customer (KYC) of PPI holder is completed (full-KYC PPI).
c) Open System PPIs: These are PPIs issued only by banks (approved
by RBI) and are used at any merchant for purchase of goods and
services, including financial services, remittance facilities, etc., and
permit cash withdrawal at ATMs / PoS / BCs. Open System PPI can
be of one type i.e., KYC compliant PPIs with balance up to ` 1,00,000
at any point of time.

7.40 A new type of PPI was introduced in December 2019, which can be
loaded / re-loaded only from a bank account and / or a credit card, and
can be issued based on essential minimum details sourced from the
customer. Such PPIs can be used only for purchase of goods and services
and not for funds transfer. The amount loaded in such PPIs during any
month should not exceed ` 10,000 and the amount outstanding at any point
of time should not exceed ` 10,000. Further, the total amount loaded in
such PPI during the financial year shall not exceed ` 1,20,000.
7.41 Interoperability has been allowed among PPIs which provides access
to a wide number of merchants among the PPI holders and vice-versa,
without the need for multiple on boarding by various issuers and acquirers.
While consumers have benefited from convenient payment option and
pricing benefits (cashback / discounts), it is the 'cost-effectiveness' that
appeals to the merchants as the cost associated with e-Money acceptance
including setting-up infrastructure and transaction fees is much lower
compared to traditional card-based payment system.
7.42 Demonetisation in November 2016 was a game-changer for e-Money

as people switched to electronic-modes of payments resulting in a year
on year growth of 162.5% in the year 2016. While medium to large-value
transactions continue to be made through digital banking channels and
cheques, the low-value day-to-day transactions shifted to e-Money. The
trend continued in succeeding years, viz., an increase of 76%, 33% and
15% in volume in FYs 2017-18 and 2018-19 and 2019-20 respectively,
showing a perceptible shift towards e-Money.
Table 12: Growth of e-Money
Source: RBI Data

Unstructured Supplementary Services Data (USSD)
7.43 With growing mobile density, banks started offering mobile banking
services to their customers using the USSD channel through bilateral tie-
ups with individual telecom providers. To obviate the need for multiple
bilateral tie-ups and to ensure interoperability across banks and telecom
providers so that all customers / subscribers could benefit from USSD-
based services, a common platform offering USSD-based mobile payments
services was set-up through NPCI in 2013.
7.44 With the launch of USSD 2.0 along with BHIM on December 30, 2016,
UPI is now available for non-internet based mobile devices (smartphone
as well as basic phones) in the form of dialling option (*99#). Currently,
financial, non-financial and certain value-added services (Aadhaar linking
status & PMJDY A/C Overdraft Status) are offered through this service. The
USSD has since been subsumed into the broader UPI platform.
Interoperability
7.45 Interoperability is the technical compatibility that enables a payment

system to be used in conjunction with other payment systems. Interoperability
allows the issuers, the system providers and the system participants in
different systems to undertake, clear and settle payment transactions
across systems without participating in multiple systems.
7.46 Interoperability is the corner stone of payment systems in India.

Interoperability across instruments, networks and infrastructure as evidenced
in the interoperability of ATMs, PoS, Mobile Banking, PPIs, QR codes,
BBPS, etc., has enabled use of any card on any PoS or ATMs, use of
mobile banking products independent of mobile network operator, enabled
QR code payments and bill payments irrespective of app provider and
many more such instances resulting in optimum and efficient use of
available infrastructure, decreased cost and increased convenience.
Growth of digital payments
7.47 The acceptance and growth of digital payments has been exponential
over the years. From 498 crore transactions with a value of 96 lakh crore
handled during FY 2010-11, digital payments have grown to 1623 crore

transactions with a value of 3435 lakh crore in the FY 2019-20. This represents
a CAGR of 12.54% and 43.01% in terms of volume and value, respectively.
7.48 Global Data, a data and analytics company, in its 2017 Consumer
Payments Insight Survey, observed that India is one of the top markets globally
in terms of digital cash adoption with 55.4% survey respondents indicating
usage of digital cash. India is followed by China and Denmark. The adoption
level in India is much higher compared to many of the developed markets such
as the US and the UK, where consumers predominantly use cards.
Table 13: Digital Payments in India
Source: RBI Data
7.49 Within the digital payments, retail electronic payments comprising credit
transfers {NEFT, fast payments (IMPS and UPI)} and direct debits (ECS,
NACH) have shown a rapid growth over the past ten years at a CAGR of 55%
and 43% in terms of volume and value, respectively. e-Money issued in the form
of wallets and prepaid cards demonstrated an increased adoption with a CAGR
of 91% and 56% in terms of volume and value, respectively in the past 9 years.
Table 14: Digital Payment Systems in India

Source: RBI Data
7.50 The most effective way to exponentially increase the digital payments
is to target the generation which is most responsive to technology and
digital age7 . Since India has a large population of millennium children
(individuals born between 1982 and 2004) or currently referred to as the
"heads down" generation, the aptitude for digital products is large. This
generation has little brand loyalty and is ready to try out new payment
systems / channels when the rewards are good. PSPs will have to design
products and plans which would help drive and sustain mass adoption and
engagement.
_______
7
“Retail payments ecosystem has not only evolved over the last twenty five years but has also taken
a revolutionary trajectory in many areas. Whether it is fast payments (IMPS) offered through multiple
access channels (mobile, net banking, ATM, branch, IVR, BC, etc) or mobile banking / payments, cheque
clearing or card payments security aspects, our systems are comparable with the best in the world, which
is no mean achievement for a country like ours despite challenges in the form of migrating large segments
of cash transactions to electronic, financial inclusion, awareness and financial literacy, customer
protection, etc.”
(Shri R Gandhi, former Deputy Governor, RBI, 2016)

Chapter 8
Acceptance Infrastructure
8.1 Infrastructure is the key requirement facilitating both cash dispensation
and electronic payments. While it is true that bank branches and ATMs
facilitate cash transactions, the former also facilitate electronic payments
and the latter acts as a confidence factor that cash is available when
required and there is no need to keep or hoard physical cash. PoS
terminals and mobile phones directly aid electronic transactions.
Bank Branches
8.2 The last 10 years have witnessed a CAGR of 6% in the number of

branches of SCBs across the country. The increase in branches, especially
in rural and semi-urban areas has been an enabler for instilling banking
practices in these areas which aids digital payments.
Table 15: Branches of Scheduled Commercial Banks (SCBs) - India
Source: RBI Data
Automated Teller Machines (ATMs)
8.3 Equivalent to cash, ATMs are terminals that allow authorised users,
typically by using a card, to access a range of services such as cash
withdrawals, balance enquiries, transfers of funds and / or acceptance of
deposits. ATMs primarily form a part of cash infrastructure, but their
deployment is necessary to ensure that cash is available when needed.

8.4 ATMs have progressed from being only cash dispensing machines as
they also facilitate digital bill payments and card to card transfers. Banks
can now offer all their products and services through ATM channel,
provided adequate checks are put in place to prevent the channel from
being misused to perpetuate frauds on banks / genuine customers. In
addition, features like interoperable cash deposit and card to card funds
transfer are enabled at ATMs. Bill payments have also been enabled by
some banks at their own ATMs (i.e., for "on-us" transactions). A pilot on
QR code-based cash withdrawals from ATMs is underway.
White Label ATMs (WLAs)
8.5 ATMs registered a healthy growth in numbers but their deployment was
predominantly in Tier I & II centres. To facilitate expansion of ATMs in Tier
III to VI centres, it was decided in 2012 to permit non-bank entities to set
up, own and operate ATMs and such ATMs were called WLAs. The WLA
operator's role is confined to acquisition of transactions of all banks'
customers by establishing technical connectivity with the authorised shared
ATM Network Operators / Card Payment Network Operators. The criteria
for distribution of these WLAs in various tiers was fine-tuned in 2019 to
provide more thrust on remote centres by stipulating a revised proportion
of deployment of ATMs in the ratio of 1:2:3 for Metro & Urban: Semi-Urban:
Rural Regions. As on November 30, 2020, there were 2.34 lakh ATMs and
0.25 lakh WLAs.
Micro-ATMs
8.6 Micro-ATM is a device used by a BC to connect to his / her bank,

authenticate customers and perform transactions. Although, it is called
micro-ATM, it does not have cash storage or dispensation facilities. The
cash balances are reflected online but physical cash is deposited with or
handed out by the BC.
8.7 Micro-ATMs are based on a bank-led model for financial inclusion,

where the Aadhaar infrastructure is an overlay on the existing banking and
payments infrastructure. The basic interoperable transaction types that a
micro-ATM supports are deposit, withdrawal, funds transfer, balance
enquiry and mini-statement. The means of authentication supported by a

micro-ATM are (i) Aadhaar + Biometric; (ii) Aadhaar + OTP; (iii) Card +
Biometric; (iv) Card + OTP; and (v) Card + PIN. An account holder can
access his bank account through a micro-ATM using any of these methods
and perform transactions supported by it.
8.8 The roles of various participants in deployment of a micro-ATM network

are as follows:
a) Issuing bank: The issuing bank is the bank that owns the customer
relationship, and stores account details in its CBS. The customer
banks with the issuing bank and interacts with it for any queries, it
serves as a touch point for dispute resolution. It authorises transactions
and carries out transactions that the customer initiates.
b) Acquiring bank: The acquiring bank is the bank that owns the BC
relationship at the transaction point.
c) Business Correspondent (BC): A BC is appointed by the bank

providing access to basic banking services using micro-ATM. Banks
may either appoint an individual BC or a corporate BC, who further
can appoint sub-agents.
d) Technology Service Provider (TSP): TSP provides technology to the

Acquiring Bank to support BC operations.
e) Multilateral switch: The multilateral switch is used in the case of 'off-

us' transactions to provide interoperability. It routes transactions from
the acquiring bank to the issuing bank, and routes the authorisation,
settlement and reconciliation messages. An 'off-us' transaction in
case of funds transfer may involve multiple banks, viz., the acquiring
bank, the issuing bank, and the recipient's bank and the process is
put through by the multilateral switch. This multilateral switch is
operated by NPCI and other interbank switch vendors.
f) UIDAI: The Aadhaar platform will support the micro-payments platform

by providing methods for secure authentication of an individual, using
the Aadhaar number and demographic data, biometrics, OTP, etc.
The secure authentication provided by the UIDAI facilitates interoperability
among micro-ATM devices operated by different banks, much like the
existing ATM network.

8.9 IBA, IDRBT, NPCI and UIDAI are the custodians of the micro-ATM
standards. RBI being the regulator of payment systems, regulates the
micro-ATM payments platform as well. As on November 30, 2020, there
were 3.57 lakh micro-ATMs.
8.10 Micro-ATMs have added impetus to financial inclusion efforts as

banks can rely on BCs to reach the unbanked regions of the country.
Customers can access secured banking facilities at their doorstep. Micro-
ATMs through BCs are cost effective retail model of banking vis-à-vis the
more sophisticated ATM operations. Micro-ATMs being linked to bank's
CBS, facilitate real time online tracking of transactions resulting in quicker
detection of anomaly (failed / disputed transaction) and resolution. It also
facilitates government's programme of direct cash transfer.
Point of Sale (PoS) Terminals
8.11 PoS terminals are devices typically used at a retail location to capture
payment information electronically and - in some cases - on paper
vouchers. To encourage usage of cards, card infrastructure, viz., PoS
terminals are required to be robust, strong and secure.
8.12 As on November 30, 2020, there were 54.19 lakh PoS terminals
deployed across the country. While India made considerable progress with
reference to the absolute number of PoS terminals deployed, the number
of persons served by a PoS terminal continues to be high at approximately
250. In order to increase the acceptance infrastructure, which also includes
installation of PoS machines, RBI has announced the operationalisation
of a Payments Infrastructure Development Fund (PIDF).
8.13 Cash can be withdrawn at PoS terminals using debit cards / open
loop prepaid cards issued by banks. The limits for such withdrawal are up
to ` 1000/- per day in Tier I and II centres and up to ` 2,000/- per day
in Tier III to VI centres. Customer charges, if any, on such cash withdrawals
should not be more than 1% of the transaction amount.
8.14 ATMs and PoS terminals have grown at a CAGR of 10% and 26%,
respectively over the past 9 years. While the number of ATMs (a "cash"
infrastructure) has grown at a low pace, the growth of non-cash infrastructure,
mainly depicted by PoS, has been significant. This has given further fillip
to digitisation.
Table 16: ATMs and PoS terminals
Source: RBI Data
Source: CPMI Red Book
Quick Response (QR) Code
8.15 Another important acceptance infrastructure gaining popularity is the

digital PoS or the QR code. Bharat QR has grown as a lightweight, low
cost method to bring merchants into the acceptance network. A QR code-
based payment is a contactless payment method where a payment is
performed by scanning a QR code from a mobile app. When a QR code
is scanned, the merchant / customer details get auto-populated which is
used for performing a transaction.

8.16 To address the issue of multiple QR codes, a common standard,
named Bharat QR standard, was formulated collectively by Mastercard,
NPCI and Visa. It is a common interoperable solution for card payments
in both physical and electronic form. Subsequent developments have
resulted in formulation of dynamic QR codes which are more user friendly
and safe. In August 2016, NPCI launched UPI with UPI QR code
specifications. Apart from Bharat QR code, there are other QR codes in
existence, viz., PayTM, MobiKwik, etc. They are based on the same ISO
/ IEC 18004 standard with some customisation done by each of them to
create proprietary QR codes.
8.17 QR code-based payments are widely prevalent in the country and is

expected to increase substantially in the coming years which along with
physical PoS terminals will facilitate the rapid adoption of digital payments.
As on November 30, 2020, over 7 crore payment QR codes (Bharat QR,
UPI QR as well as proprietary QRs of other PSOs) were deployed of which
30.46 lakh pertained to Bharat QR.
8.18 The cost of deployment of QR code (print of the QR code) is negligible

as compared to other acceptance infrastructure like physical PoS terminal
which increased the growth of QR code deployment in the country. As there
are several QR codes, an assessment was considered necessary of the
need for having so many QR codes and merits of their coexistence or
convergence from both systemic and consumer viewpoint. Accordingly, a
committee comprising of experts in the QR code domain was constituted
to examine the impediments in adopting a common QR code; identify the
challenges in mandating interoperability across proprietary QR codes and
provide options to overcome such challenges; and assess the scope of
improvement in existing QR codes like Bharat QR as a convergent QR
code in terms customisability for futuristic technologies like Internet of
Things (IoT) based payments.
8.19 Based on the recommendations of the Committee, in order to

streamline the QR code infrastructure, instructions were issued by RBI in
October 2020 that going forward, only the two interoperable QR codes
(Bharat QR and UPI QR ) would continue and all PSOs using proprietory
QR were required to shift to one of the interoperable QRs by March 31,

2022. It was also stated that new QR codes should be interopearable ab-
initio. Further, going forward, PSOs were advised to not launch any new
propietory QR codes.
Payments Infrastructure Development Fund (PIDF)
8.20 The digital payments ecosystem has made substantial progress with
networked bank accounts, bank branches, cards, mobile phones and a
resilient payments infrastructure. The acceptance side, however, continues
to be plagued with limited availability, mostly due to high costs.
8.21 The PSS Vision 2019-21 envisaged the creation of an Acceptance

Development Fund to subsidise acquirers for deploying PoS acceptance
infrastructure in tier-3 to tier-6 centres to address the supply side issues.
This was also recommended by the Committee on Deepening of Digital
Payments (CDDP) chaired by Shri Nandan Nilekani. RBI has place set up
PIDF, the focus of which is to increase the acceptance infrastructure (both
PoS and digital) with enhanced emphasis on Tier VI and Tier V centres
followed by Tier IV and Tier III centres as also the north-eastern region.
8.22 Contributions to the corpus and yearly accruals to the fund will be
made by RBI, issuers and card networks and the fund will be administered
by RBI. Government payments, fuel pumps, PDS shops, healthcare, kirana
shops will be identified for deployment, especially in the targeted geographies.
PIDF would support multiple payment acceptance devices / infrastructure
supporting underlying card payments, such as MPoS (mobile PoS), GPRS
(General Packet Radio Service), PSTN (Public Switched Telephone Network),
QR code-based payments. An Advisory Council under the Chairmanship
of Deputy Governor, RBI has been constituted and specific sub-committees
have been formed for effective monitoring of the implementation of PIDF.
PIDF has been operationalised from January 2021.
_______

Chapter 9
Government Payments
9.1 Government payments play a critical role in the development of a
national payment system especially in developing economies. Government
payments can facilitate economic growth and trigger innovation in the
underlying payment system infrastructure while enhancing public policy
goals such as efficiency, transparency, security of payments as well as
financial inclusion.
9.2 The Economist Intelligence Unit in its 2018 Government e-Payments

Adoption Ranking had ranked India 28th amongst 75 countries and termed
India's performance as "Intermediate." Aadhaar biometric identity system,
introduced in the year 2009 has been a major facilitator in electronification
of Government payments. With approximately 127 crore Indians enrolled
in Aadhaar, it is recognised as the world's largest biometric identity system.
By linking welfare and other transfers to the unique 12-digit ID numbers
tagged to biometric markers, Aadhaar, as claimed by the government, has
helped reduce leakage (for example through graft by middlemen) and also
helped in identifying fake beneficiaries.
Aadhaar Payment Bridge System (APBS)
9.3 APBS, a component of NACH, which uses Aadhaar number for

electronic crediting of government subsidies and benefits in Aadhaar-linked
bank account, was implemented in 2012. Aadhaar mapper, a repository
of Aadhaar numbers managed by NPCI, is used for routing the APBS
transactions to the destination banks based on the unique IIN (Institution
Identification Number) of destination bank. The bank, in turn, credits the
amount to the desired account number based on the Aadhaar number of
the beneficiary.
9.4 The system has led to electronification of large number of government

payment transactions which were predominantly done either in cash or
cheque. Besides transferring the benefits and subsidies under DBT
schemes, it also serves the goal of financial inclusion.

Empowering Social Security Schemes through payment systems
9.5 Government's social security schemes like pension, subsidies, income

support, etc., require bulk processing of payment instructions in an efficient
and scalable manner. For efficient transmission of objective, the payment
systems should be capable of end-to-end automatic processing of payment
instructions without manual intervention, thereby ensuring direct benefit
transfer to the intended beneficiary. Hence efficient payment systems bring
overall transparency and public trust to these schemes.
9.6 NACH platform operated by NPCI serves this purpose. NACH platform
is used by banks, financial institutions, corporate and government departments
for handling high volume and low value credit / debit transactions which
are generally repetitive in nature. As on November 30, 2020, 1315 banks
are the direct members of NACH, while there are also several other banks
which participate in NACH system through sub-membership model. NACH
provides options to member banks for routing their credit (ACH credit) /
debit (ACH debit) transactions using IFSC / MICR Code / IIN codes etc.
Many social schemes such as Pradhan Mantri Kisan Samman Nidhi
(PMKISAN), The Pradhan Mantri Shram Yogi Maandhan Yojana (PMSYMY),
Pradhan Mantri Laghu Vyapari Maan-dhan Yojana (PMLVMY) and Pradhan
Mantri Kisan Maandhan Yojana (PMKMY), etc., were rolled out using
NACH platform.
_______

Chapter 10
Bill and Toll Payments

Bharat Bill Payment System (BBPS)
10.1 To integrate the fragmented bill payment market in the country, BBPS
was conceptualised to offer interoperable and accessible bill payment
services to customers through a network of agents with multiple payment
modes and instant confirmation of payment. Pilot phase of BBPS was
launched on August 31, 2016 and BBPS live operations commenced from
October 17, 2017. It offers "anytime anywhere" bill payment service to
customers using online payments as well as through a network of physical
agent locations. Initially, five mandatory biller categories were allowed
under BBPS, viz., electricity, water, gas, telecom (landline, mobile post-
paid, broadband) and Direct-to-Home (DTH).
10.2 RBI's paper on Benchmarking India's Payment Systems observed that

only 3% of the population in India used the internet to pay utility bills in
the year 2017. To ensure availability of digital options for paying bills, BBPS
was extended in September 2019 to include as eligible participants all
categories of billers, on a voluntary basis, who raise recurring bills (except
prepaid recharges).
Table 17: BBPS Trends
Source: NPCI Data

Source: NPCI Data
10.3 BBPS framework consists of two types of entities carrying out distinct
functions:
a) Bharat Bill Payment Central Unit (BBPCU): BBPCU is responsible for

undertaking clearing and settlement activities and define necessary
operational, technical and business standards for the entire system
and all its participants. At present, NPCI is the only entity designated
as BBPCU.
b) Bharat Bill Payment Operating Units (BBPOUs): BBPOUs are authorised

operational entities for facilitating bill payments online as well as
through a network of agents. These entities are required to adhere
to the standards set by the BBPCU. The tiered structure could be
further strengthened through an effective agent network/s of the
BBPOUs. The BBPOUs on-board billers on the one hand while
providing various customer interfaces for interoperable bill payments
on the other hand.
National Electronic Toll Collection (NETC)
10.4 To reduce the current trend of large scale cash-based toll collections,
the Government of India has mandated the use of "FASTag" based toll
payments, which is facilitated through NETC, an electronic interoperable
system for toll collection. NPCI is authorised to operate the NETC system.
10.5 The FASTag, issued by a bank or the Indian Highways Management

Company Limited (IHMCL) and affixed on the vehicle, is linked to an
underlying payment instrument - bank account (savings, current), non-
bank PPIs, cards, UPI, etc. This FASTag can then be used for payment

of toll at plazas acquired by the same or some other bank. Going forward,
FASTags can also be used for other payments such as for parking charges,
fuel purchases, etc., in an interoperable environment.
Table 18: Progress of NETC

Particulars December 2018 December 2019 December 2020
Number of FASTags
Issued (lakh) 38.22 116.66 229.02
No. Of Tolls Enabled
1) National Highways 460 587 673
2) State Highways 7 32 85
3) City 0 19 25
Source: NPCI Data
_______

Chapter 11
Trade Receivables Discounting System (TReDS)

11.1 Micro, Small and Medium Enterprises (MSMEs) play an important role
in the economic fabric of the country. The sector had been facing
constraints in obtaining adequate finance, particularly in terms of their
ability to convert their trade receivables into liquid funds. To address this
pan-India issue, setting up of and operating TReDS was conceptualised.8
11.2 TReDS is a payment system authorised under the PSS Act. It is a

platform for uploading, accepting, discounting, trading and settling invoices
/ bills of MSMEs and facilitating both receivables as well as payables
factoring (reverse factoring). MSME sellers, corporate and other buyers,
including Government Departments and PSUs, and financiers (banks,
NBFC-Factors and other financial institutions, as permitted) are direct
participants in the TReDS and all transactions processed under this system
are "without recourse" to MSMEs.
11.3 Initially, three entities were authorised to operate TReDS. To encourage

innovation and competition through increased participation, 'on-tap'
authorisation was introduced in October 2019. New players would be
authorised considering the merits of the proposal and assessment of
potential for additional entities.
11.4 RBI has not made it compulsory for any buyer, seller or financier to
participate in TReDS. 9The response has been tepid from the buyers' side.
Reasons for their reluctance could range from internal processes, indifferent
attitude towards payments to be made to MSMEs, balance sheet related
compulsions, etc. In view of this, the Government has made it compulsory
for certain segments of companies to mandatorily register as buyers on
TReDS platform(s). The government directive, however, does not make it
compulsory for these entities to perform transactions in TReDS.
8
"…delay in getting payments is one the perennial problems faced by MSMEs. To address this issue,
the Reserve Bank introduced TReDS in 2014. TReDS is an electronic platform where receivables of
MSMEs drawn against buyers (large corporates, PSUs, Government departments) are financed through
multiple financiers at competitive rates" (Shri Shaktikanta Das, Governor, RBI, March 2020)
9
"I would appeal to the ASSOCHAM to encourage and handhold all its members to participate in the
TReDS platform." (Shri Shaktikanta Das, Governor, RBI, March 2020)

Chapter 12
Cross-border Payments
Indo-Nepal Remittance Facilities Scheme
12.1 Based on the recommendations of the Committee on Modalities of

Workers' Remittance between India and Nepal, the Indo-Nepal Remittance
Facilities Scheme was launched in 2008 using NEFT. This cross-border
remittance scheme provides a safe and cost-efficient avenue to migrant
Nepalese workers in India to remit money back to their families in Nepal.
12.2 Nepalese citizens staying in India can avail of this service either as
walk-in customers or as account holder and can remit up to ` 50,000 from
any of the NEFT enabled bank branches in India. The money flows to a
designated branch of SBI, which consolidates and transfers the amount
to Nepal SBI Bank Ltd. (NSBL). NSBL disburses the remittance to
beneficiaries in Nepal in the local currency either through the banking
channel or a combination of banking channel and money transfer agencies
in which payment is made to the beneficiaries against production of proof
of identity as per KYC norms of Nepal.
12.3 Nepalese migrants are required to comply with KYC requirements at

the time of sending the remittance. In case of remittance from bank
account, no additional KYC is required. An originator in India is allowed
to remit a maximum of 12 remittances in a year under the scheme. In case
of return, transactions are transferred back by NSBL to SBI. Grievances
(relating to non-credit or delay in credit to the beneficiary account or for
complaints of any other nature) are addressed by the NEFT Customer
Facilitation Centre (CFC) of the respective bank (the originating bank and
/ or SBI).
Money Transfer Service Scheme (MTSS)
12.4 Inward remittances into India are received through various channels
such as banking, postal, MTSS and Rupee Drawing Arrangement (RDA).
India is the largest recipient of remittances in the world with around 11-
12% of global remittance inflows.

12.5 MTSS is a quick and easy way of transferring personal remittances
from abroad to beneficiaries in India. The scheme allows remittance from
abroad to Indian families and foreign tourists visiting India. A cap of USD
2,500 per transaction and up to 30 remittances in a calendar year has been
placed for an individual beneficiary.
12.6 MTSS involves a tie-up between reputed money transfer companies

abroad known as Overseas Principal and agents in India known as Indian
Agents. The Indian Agents can further enter into sub-agency agreements
with entities, for undertaking money transfer business. DPSS authorises
and regulates the MTSS operators. As on date, authorisation has been
granted to nine Overseas Principals under MTSS. Oversight of the
Overseas Principal is done mainly through analysis of off-site returns
submitted by them. Agents and Sub Agents of the scheme are regulated
and supervised in the RBI by its Foreign Exchange Department.
12.7 The overseas principal-wise share of remittances under MTSS in

2019-20 is depicted below.
Table 19: Share of entities in total remittance in 2019-20
Source: RBI Data
Task Force on Cross-border Payments (TFCBP)
12.8 CPMI constituted a task force on cross-border payments in December

2019 and RBI is a member of the task force. In line with the G20 mandate
to coordinate and develop a roadmap to enhance cross-border payments,
the task force had undertaken a detailed assessment of existing cross-
border payment arrangements and challenges.
12.9 The main objective of the task force is to evaluate concrete measures
for improvement of the cross-border payment system, by combining
greater efficiency with financial inclusion, while addressing associated
risks. The task force evaluated (i) areas for improvement of core payment
infrastructures (including those provided by central banks), (ii) ways to
foster interoperability, (iii) the role of innovative technologies, services and
providers, and (iv) how payment system oversight and the role of central
banks as a catalyst for change (e.g., by promoting adoption of international
messaging / business standards) can support actions for improvement.
12.10 In the second stage of the project, the CPMI worked on these
findings by creating building blocks of a response to improve the current
global cross-border payment arrangements. RBI was involved in the
following building blocks: (i) Adoption of harmonised API protocols for
payments data exchange, as the primary penholder; (b) Actions for
improved (direct) access to payment systems (including to RTGS), by
banks, non-banks and payment infrastructures, as a peer reviewer and (c)
Reciprocal liquidity arrangements across central banks (liquidity bridges),
as a peer reviewer.
12.11 The focus in the third stage was to build a clear work plan to deliver
real improvements in cross-border payments. This roadmap was developed
by the Financial Stability Board (FSB), in coordination with the CPMI and
other relevant international organisations and standard-setting bodies. The
roadmap identified specific actions under each of the building block
identified in Phase 2 with established milestones and timelines. Further,
authorities responsible for carrying out the actions were also identified. The
roadmap provides a high-level plan, which sets ambitious goals and
milestones, and is designed to allow for flexibility and adaptation, while
ensuring that the safeguards in terms of secure processing and legal
compliance are observed. It encompasses a variety of approaches and
time horizons, in order to achieve practical improvements in the shorter
term while acknowledging that other initiatives will need to be implemented
over longer time periods.
12.12 RBI's PSS Vision 2019-21 envisaged enhancing global outreach of

its payment systems, including remittance services, through active participation

and co-operation in international and regional fora by collaborating and
contributing to standard setting. RBI, in close collaboration with the
Government and NPCI, is working in the direction of expanding the reach
of UPI and RuPay globally. In this connection, it has written to other central
banks highlighting the features of UPI as an efficient and secure system
which can be used to transform retail payment mechanisms globally and
at the same time promote financial inclusion. UPI system has the potential
to evolve into a cheaper and quicker alternative to available channels of
remittance for cross-border payments as well, whether related to retail
remittances or small-value trade transactions. It could, in future, provide
the basis for a stronger bilateral business and economic partnership with
other jurisdictions.
12.13 The Reserve Bank has also participated in the regional outreach
programs where the features of UPI and the possibility of leveraging on
the UPI system to facilitate cross-border transactions was presented to
participants. The Reserve Bank is collaborating with BIS to organise
outreach events / webinars to spread awareness about the potential of UPI
and encourage adoption of UPI / RuPay cards across jurisdictions.
_______

Chapter 13
Third Party Payment Providers

Third Party Application Providers (TPAPs)
13.1 TPAPs refer to (API), which are either standalone applications or

applications that add functionality to an existing parent program / system. In
the financial space, third party apps are often connected to a banking
application to provide a variety of services. A third party app sends a request
to the linked banking application for permission to access the user's bank
details, which is further relayed by the banking application to the customer
to authenticate the request. These apps provide flexibility and freedom to
consumers to select solutions they find most convenient to meet their
financial needs.
13.2 TPAPs are the best examples of public-private partnership and

underscore the importance of fintech in the payments' ecosphere. CDDP
appreciated the partnership between banks and non-banks and noted that
the latter are responsible for expanding the range of payment services
available to the Indian consumer on account of their technology and customer
centric innovation. This "best of both worlds" approach has contributed to the
recent growth in digital payments, and is expected to grow further. This
architecture balances regulatory safety and innovation as it combines the
safety and trust of banking institutions with the informality and convenience
offered by non-banks.
13.3 In the payment space, third party service providers are primarily in the
form of payment gateways, payment aggregators and TPAPs in UPI. The UPI
ecosystem is designed for banks. Only a banking entity can directly interact
with the UPI switch. However, non-banking entities can participate by
partnering with a banking entity which is already on UPI platform, and
developing their own APIs referred to as third party apps. The role of these
entities is more in the nature of facilitator for transactions as the entire
operational and financial liability of transactions originated through third party
app lies on the bank. There are over 20 TPAPs (eg., Google Pay, WhatsApp
etc.) in UPI. Around 200 crore UPI transactions are undertaken each month,
of which a significant share are originated through the third party apps.

13.4. Leveraging further on the system, a multi-bank model has been
introduced for large TPAPs which allows them to tie-up with multiple banks
to act as PSPs. As in the case of single bank model, the TPAPs provide
only customer interface, while the transactions continue to be processed
through the underlying PSP bank.
Payment Aggregators (PAs) / Payment Gateways (PGs)
13.5 A typical online payment transaction requires the involvement of

several intermediaries like banks and non-banks which act as merchant
aggregators. PAs, provide PG services and engage in other technology
driven value-added activities. PAs and PGs are entities that facilitate e-
commerce sites and merchants to accept various payment instruments
from customers for completion of their payment obligations without the
need for merchants to create a separate payment integration system of
their own. In this process, while PAs also handle funds, PGs provide only
technological infrastructure. While banks and other PSOs are directly
regulated by RBI, the PAs and PGs were not.
13.6 Given the critical role of these intermediaries in payment transactions,

PAs have been brought under regulations while baseline technology
specifications have been laid down for PGs. Banks provide PA services
as part of their normal banking relationship and hence do not require a
separate authorisation from RBI. Non-bank PAs will now require authorisation
from RBI under the PSS Act. e-commerce market places selling goods of
various merchants on their platform are exempted from these guidelines.
However, if an e-commerce market place is providing aggregation services,
it will have to segregate the PA services from other businesses and apply
for authorisation for continuing PA services.
13.7 The guidelines mandate that a proper Customer Grievance Redressal

and Dispute Management Framework is put in place along with a strong
risk management system with adequate information and data security
infrastructure for prevention and detection of frauds in order to make the
payment systems safe, secure and robust systems and ensure customer
protection.
_______

Chapter 14
Settlement Systems
Securities Settlement - Clearing Corporation of India Limited (CCIL)
14.1 CCIL is a FMI, authorised by RBI under the PSS Act to operate various
payment systems and function as a TR. CCIL has been granted the status
of a Qualified Central Counterparty (QCCP) in the Indian jurisdiction.
14.2 As a risk mitigation measure, CCIL has constituted the following

subsidiaries for undertaking activities not relating to its role as a central
counterparty (CCP):
a) Clearcorp Dealing Systems (India) Limited (CDSL) was set up in

June, 2003 to provide dealing systems / trading platforms for repo,
tri-party repo, money market instruments and forex exchange
transactions. The subsidiary was set up to separate the risk bearing
activities of CCIL viz., clearing and settlement from its dealing
activities.
b) Legal Entity Identifier India Limited (LEIL) was set up in 2015 as a

Local Operating Unit (LOU) for issuing globally compatible LEI in the
Indian financial market.
Government Securities Segment
14.3 The secondary market outright, repo and tri-party repo trades
(settlement on T+0 to T+2 basis) are undertaken on order matching
platforms i.e., Negotiated Dealing System-Order Matching (NDS-OM),
Clearcorp Repo Order Matching System (CROMS) and Triparty Repo
Dealing System (TREPS), respectively. Further, OTC trades reported on
NDS-OM and CROMS, are also cleared and settled by CCIL on a "net"
basis with CCIL arriving at a single funds and securities settlement
obligation for each member for each settlement date. CCIL acts as a CCP
for all trades ensuring guaranteed settlement with multilateral netting
benefits. The funds settlement is through a settlement bank or RBI, for
members maintaining a current account with the Designated Settlement
Bank (DSB) or RBI, as the case may be. With effect from November 5,
2018, Collateral Borrowing and Lending Obligation (CBLO) was replaced

by tri-party repo under the Securities segment.
Forex Segment
14.4 CCIL settles all inter-bank cash, tom, spot and forward USD / INR
transactions on guaranteed basis through a process of multilateral netting.
Trades done on Fx-Clear and Fx-Swap trading platforms as well as inter-
bank transactions concluded bilaterally by clearing participants that are
reported to CCIL flow to CCIL's settlement system. The trades are
validated and matched trades that pass an exposure check are 'accepted'
for settlement. Novation occurs at the point in time when the trade is
accepted for guaranteed settlement and the net amount payable to or
receivable from CCIL in each currency is arrived at, member-wise,
following the multilateral netting procedure.
14.5 CCIL settles the net positions of the members on a Payment versus
Payment (PVP) basis with the INR leg settled through the member's
current account at RBI and the USD leg settled through CCIL's USD
account with its settlement banks.
Forex Forward Segment
14.6 Interbank forex forward trades with residual maturity up to 13 months

are eligible for guaranteed settlement under forex forward segment.
Forward trades concluded on Fx-swap trading platform and OTC trades
reported by the members flow to CCIL for clearing and settlement. Two
days prior to settlement , i.e., on S-2 day, the net position of each member
is computed for all underlying trades accepted for guaranteed settlement
for the relevant settlement date.
Rupee Derivatives (IRS) Segment
14.7 CCIL extends guaranteed settlement of trades in IRS and FRA

referenced to Mumbai Interbank Offer Rate (MIBOR), and Mumbai Interbank
Overnight Indexed Swaps (MIOIS) benchmarks. Instruments covered
under IRS and FRA are IRS - fixed float and basis swaps referenced to
MIBOR and MIOIS with maximum maturity of 10 years and FRA with
maximum maturity of 10 years. CCIL also commenced clearing of IRS
trades referenced to MIFOR benchmark with maximum maturity of 5 years

from November 19, 2018.
Continuous Linked Settlement (CLS)
14.8 CCIL offers non-guaranteed settlement of cross currency transactions

through CLS Bank on a PVP basis. The settlement is through a third party
arrangement.
Directions for central counterparties (CCPs)
14.9 Directions on governance of domestic CCPs authorised to operate

in India by RBI: Governance provides the processes through which an
organisation sets its objectives, determines the means for achieving those
objectives, and monitors performance against the objectives. To ensure
appropriate governance standards in CCPs, RBI issued directions on the
broad principles underlying governance of CCPs covering the composition
of the board, roles and responsibilities of the board, appointment of
Directors, constitution of Committees, etc.
14.10 Directions on networth requirements and ownership of CCPs: CCPs

should have sufficient networth to cover potential general business losses
and continue to provide services as a going concern. RBI stipulated a
networth of ` 300 crore for authorisation / recognition of any CCP desirous
of operating in India. Further, in line with the Principles for Financial Market
Infrastructures (PFMIs), CCPs are required to hold liquid net assets funded
by equity capital equal to minimum of six months of current operating
expenses. With regard to ownership of the CCP, shares of an authorised
CCP can be held only by persons who are users of the authorised CCP.
CCIL is compliant with the requirements laid out for networth and ownership
of CCPs.
_______

Chapter 15
Settlement Processes
15.1 Settlement can be defined as the process of transferring of funds
through a central agency, from payer to payee, through participation of their
respective banks or custodians of funds. The two key elements for payment
processing are payment order or message requesting the transfer of funds
to the payee and the actual transfer of funds between the payer's bank
and the payee's bank. Settlement systems can be classified based on (i)
time - designated-time (or deferred) settlement systems and real-time (or
continuous) settlement systems and (ii) amount - gross settlement and net
settlement. India has multiple payments and settlement systems, for both
gross and net settlement systems.
15.2 Participants in PSS are exposed to two risks that need to be

addressed, viz., credit risk and liquidity risk. Credit risk, which may occur
due to default of a counterparty, is the risk that a counterparty will not meet
an obligation when due. Liquidity risk is when a counterparty will fail to
settle an obligation for full value when due, but will do so at some
unspecified time thereafter. Both credit and liquidity risks together constitute
settlement risk.
Gross Settlement
15.3 A gross settlement system is one in which the settlement or funds

transfer occurs individually as and when each payment transaction is
processed in the system. Each transaction is settled on a one-to-one basis
without bundling or netting with any other transaction. In some countries,
there are systems in which the final settlement of transfers occurs at the
end of the processing day without netting the credit and debit positions on
a transaction-by-transaction basis. Such systems are called end-of-day
gross settlement systems. In the RTGS systems, usually operated by a
country's central bank as it is seen as a critical infrastructure for a country's
economy, the inter-member payments settle on a 'real' time and a 'gross'
basis in the books of the central bank.
15.4 Since RTGS does not have a settlement lag, it eliminates settlement
risk. The liquidity risks in RTGS are managed through IDL extended to

members by RBI against fully collateralised Indian government securities
held by the members in their IDL-SGL account. IDL is extended free of
interest. IDL has to be reversed by the end of the day and failure to do
so is subject to penal interest on outstanding balances.
Net Settlement
15.5 In a net settlement system, many transactions are accumulated and

offset against each other, with only the net differential being transferred
between members. A participating member's net settlement position, debit
or credit, as the case may be, is calculated, on either a bilateral or a
multilateral basis, as the sum of the value of all the transfers it has received
up to a particular point in time minus the sum of the value of all the transfers
it has sent. Multilateral net settlement makes it easier for members to
manage their liquidity.
15.6 A few clearing institutions send net transfer information to settlement

institutions several times a day in batches for processing which are called
MNSB files. NEFT settlement works on net-settlement in batches, with 48
batches of settlement over a span of 24 hours, the first and last batches
taking place at 0030 hours and midnight, respectively.
Deferred Settlement
15.7 In NEFT, the beneficiary customer receives the funds only after final
settlement takes place between members. However, in a few systems like
UPI and IMPS, while funds are credited to the beneficiary customer immediately,
the inter-bank settlement is done later according to a pre-defined settlement
cycle which at present takes place four times a day. This is called Deferred
Settlement and in the case of IMPS and UPI, the settlement.
15.8 In IMPS, a transaction is received at NPCI for routing to beneficiary

bank / PPI only after the remitting bank has debited the remitting
customer's account. Therefore, the risk of a remittance being made with
the remitting customer not having adequate funds is addressed. The
transaction is credited to beneficiary account on message being received
by destination bank. From the members' perspective, MNSB files are
generated by NPCI based on these messages which are also received by
NPCI as the settlement agency. Final interbank settlement by debiting the

sending bank and crediting the beneficiary bank takes place on a net basis.
Settlement Guarantee Mechanism
15.9 Deferred Net Settlement (DNS) systems may expose participants to

credit and liquidity risks for the period during which settlement is deferred.
Settlement finality is only achieved at the end of designated settlement
cycles in DNS systems and thus if there is no settlement guarantee, either
by the system or its participants, there is no certainty that the payments
will be settled until that point in time. If a participant fails to meet its payment
obligation when due, some or all processed payments could be unwound,
thereby exposing participants to liquidity risk and possibly credit risk.
15.10 To mitigate these risks, the settlement agency operates a Settlement

Guarantee Fund (SGF). The SGF provides a cushion for any residual risk
and operates like a self-insurance mechanism wherein members themselves
contribute to the fund. In the event of a member failing to meet its
settlement obligation, on the settlement date and thereafter, then the fund
is utilised to the extent required for successful completion of the settlement.
The remaining participating member banks will make contribution towards
sharing of loss in accordance with the defined loss sharing mechanism put
in place. This eliminates counter-party and settlement risks as the settlement
takes place on time irrespective of default by isolated members.
Unwinding
15.11 In a scenario where supervisory action undertaken on a participating

member bank by imposing restrictions on a member bank indicates that
a fraudulent / erroneous transaction was undertaken that needs to be
reversed, the member positions or specific transaction may need to be
removed from the settlement file of the payment system by unwinding the
position in the system. This unwinding of payment transactions from the
settlement file is essential for risk mitigation to eliminate settlement risk.
However, unwinding is undertaken sparingly, only in case of exigencies,
with the aim to ensure safety and security of payment systems.
_______

Chapter 16
Approach to Regulation
16.1 RBI has always adopted an inclusive, participative, responsible
and responsive (to market conditions) approach to framing its payment
systems regulations. It balances customer security with innovation and
evolution of technology through its forward - looking vision for
regulation. The legal basis for regulations emanates from Section 3
of the PSS Act which states that the Reserve Bank shall be the
designated authority for the regulation and supervision of payment
systems under this Act.
16.2 RBI prescribes best practices through its regulatory approach but
has remained technology agnostic or technology neutral to enable the
ecosystem to develop and adopt the best technology. The approach
to payment system regulation has been bank-led with inclusion of non-
banks over time to widen the scope, access and outreach of payment
systems. The mobile banking regulations framed in 2008 were initially
a 'bank-led' model and consciously technology neutral. Subsequently,
non-banks were also allowed to be part of the domain.
16.3 RBI's inclusive, participative and responsive approach to regulation

involves placing of discussion papers, concept papers and draft
circulars / guidelines on its website for public comments and feedback.
Each feedback received is examined and after due deliberations,
appropriate inputs are included in the final guidelines / circulars /
regulations so that they are in harmony with the stakeholder feedback
and expectations to the extent possible. For some specific issues,
committees are formed where industry nominees are invariably included
as members, for their insights from the practitioners' point of view.
The committee reports serve as guiding tools for framing regulations
on specific issues. Industry consultation along with inter-regulatory and
intra-regulatory coordination groups are made use of for broader areas
involving cross-sectoral / cross-border issues which require consultative
approach.

16.4 Just like forward guidance, speeches by the top management of
RBI also give indicative guidelines or define regulatory expectations
for payment system participants to set the tone for future actions in
the ecosystem. In framing regulations, RBI has always been responsive
to market expectations and global technology evolutions through
collective and collaborative effort on the one hand, while at the same
time also signalling an indicative path to the ecosystem to nurture the
evolution in a desired manner.
_______

Chapter 17
Governance in Reserve Bank

17.1 RBI as the central bank of India has taken several initiatives and plays
the lead role for development of safe, secure, sound, efficient and
accessible payment systems in the country. For effective governance of
vast spread payment systems in a populous country like India, a tiered
governance structure has been adopted by RBI. At the apex of the structure
is BPSS, a sub-committee of the Central Board of RBI, and is the highest
policy making body on payment systems in the country. BPSS is empowered
to authorise and prescribe policies and set standards for regulating and
supervising all the payment and settlement systems in the country. DPSS
of RBI serves as the Secretariat to the Board and executes its directions.
17.2 Regulation and oversight of Payment and Settlement Systems (PSS)

is guided by BPSS which was constituted as a Committee of the Central
Board Directors of RBI, in terms of BPSS Regulations, 2005 and notified
on February 18, 2005. BPSS started functioning from March 07, 2005 and
with the promulgation of the PSS Act and BPSS Regulations, 2008 it has
been functioning under the contours of PSS Act. As per regulation 9 of the
BPSS Regulations, 2008, BPSS is ordinarily required to meet at least once
in three months. BPSS submits a report on activities of the payment
systems to the Central Board of RBI on an annual basis.
17.3 BPSS consists of the following members, namely, (a) Governor is the
Chairperson of BPSS; (b) Deputy Governors, out of whom the Deputy
Governor in-charge of the DPSS, is the Vice-Chairperson of BPSS; and
(c) Not more than three Directors of the Central Board nominated by the
Governor.
17.4 Two Executive Directors nominated by the Chairperson and the

Principal Legal Adviser in RBI are permanent invitees to the meetings of
BPSS. Person/s with experience in the fields of payment and settlement
systems may be invited by BPSS to attend its meetings either as
permanent or as ad-hoc invitee/s.
17.5 Section 4 of BPSS Regulations mandates the functions and powers

for the Board, which includes the following matters:

a) the laying down of the policies relating to the regulation and
supervision of the payment systems including electronic, non-electronic,
domestic and cross-border payment systems affecting domestic
transactions;
b) the laying down of the standards for both existing and future payment
systems;
c) the authorisation of the payment systems;
d) the determination of the criteria for membership of the payment
systems including continuation, termination and rejection of membership;
e) overseeing the administration of regulations and guidelines framed
under the Act for the purposes of the above matters and the
directions issued by the Bank from time to time to the operators of
the payment systems and their members and taking such action as
may be deemed necessary for ensuring the compliance;
f) creating necessary administrative structure within the existing rules
and regulations for ensuring effective regulation and supervision of
the payment systems;
g) such other matters as are deemed necessary for the effective
regulation and supervision of payment systems.
17.6 It is 15 years since BPSS was constituted with the mandate to meet
at least four times in a year. The 59th meeting of BPSS was the latest meeting
held on September 23, 2020. The number of meetings conducted during the
period since the formation of the Board, reflects the intent and attention
bestowed by Reserve Bank towards this important governance function.
Empowered Committee
17.7 According to the directions of BPSS, major policy decisions are

presented before it for approval while other routine matters are placed
before an Empowered Committee constituted for that purpose. Decisions
of the Empowered Committee are informed to BPSS.
17.8 The composition of the Empowered Committee is the Deputy Governor

in charge of DPSS (as its Chairperson), the Deputy Governor in charge of
supervisory departments and the Executive Director in charge of DPSS as
members. All the three members of the Empowered Committee would
constitute the quorum for conduct of its meeting. DPSS would be the
secretariat to the Empowered Committee and its functions are as under:
a) Authorisation of payment system for which policy has already been

framed;
b) Determination of standards/membership criteria for participants for

existing payment system;
c) Overseeing the administration of regulations and supervision, including

minor changes in existing policy guidelines;
d) Other functions as and when delegated by BPSS.
Department of Payment and Settlement Systems (DPSS)
17.9 In the next layer is the oversight framework, as an effective oversight

is the key to effective governance of payment systems in the country. A
dedicated Oversight Division has been set up within DPSS at Central Office
of RBI, and is entrusted with the responsibility of conducting oversight of
all payment systems. In the third and last layer lie the four Regional Offices
(DPSS, ROs) and the thirteen National Clearing Cells (NCCs), as extended
arms of the DPSS, Central Office.
17.10 The Oversight Division at DPSS, Central Office is supported by

DPSS cells set-up at four Regional Offices at Mumbai, Delhi, Chennai and
Kolkata to conduct assessment / onsite inspection of FMIs / Retail Payment
Systems (RPSs) for which skilled resources are drawn from other departments.
While the DPSS Cells at four Regional Offices conduct on-site inspection
of various retail payment systems and Cheque Clearing Houses, the
Oversight Division at DPSS, Central Office carries out on-site inspection
of FMIs and SWIPS (NPCI). The National Clearing Cells at 13 regional
offices play the role of market intelligence and issuance of MICR (Magnetic
Ink Character Reader) codes to member institutions of concerned clearing
houses.
_______

Chapter 18
Access Criteria
Access Criteria for Payment Systems requiring authorisation under
PSS Act
18.1 RBI receives applications in terms of sections 4 and 5 of the PSS

Act for authorisation of existing and proposed payment systems. Any non-
bank entity desirous of setting up a payment system has to apply for
authorisation in Form A (available on RBI website under the hyperlink
https://rbidocs.rbi.org.in/rdocs/Forms/PDFs/PSSACRT130215.PDF) as
prescribed under Regulation 3(2) of the Payment and Settlement Systems
Regulations, 2008. The application should be accompanied by a non-
refundable fee of ` 10,000/-.
18.2 Applications found complete in all respects and conforming to the

provisions laid down, are considered and scrutinised broadly based on
parameters such as (i) need for the proposed payment system or services
proposed to be undertaken, (ii) technical standards or design of the
proposed payment system, (iii) terms and conditions of operation of the
proposed payment system including any security procedure, (iv) the
manner in which transfer of funds may be effected within the payment
system, (v) the procedure for netting of payment instructions effecting the
payment obligations under the payment system, (vi) the financial status,
experience of management and integrity of the applicant, (vii) interests of
consumers, including the terms and conditions governing their relationship
with PSPs, (viii) monetary and credit policies, (ix) customer grievance
redressal mechanism and risk management framework, and (x) any other
factor/s as are considered relevant by RBI.
18.3 The access criteria at the time of application for authorisation to set
up various payment systems is tabulated below. Any application not
fulfilling the basic eligibility criteria is returned. Further, if RBI refuses the
authorisation under section 7(3) of the PSS Act, a refusal letter stating the
reasons for refusal is sent to the entity which is given a reasonable
opportunity of being heard.

Eligibility Criteria
Sr Payment Financials Common to All (Except
No. System (Net-worth as per last Specific to Payment System Overseas Principal –
audited balance sheet) MTSS)
1. Prepaid 1) `5 crore net-worth Application should be made 1) Company registered
Payment 2) A minimum positive net- within 45 days of obtaining NoC under the Companies Act,
Instruments worth of `15 crore to be from the respective regulator (if 2013.
achieved and maintained at regulated by financial sector 2) Entities with Foreign
all times by the end of the regulator) Direct Investment (FDI) /
third financial year from the Foreign Portfolio
date of receiving final Investment (FPI) / Foreign
authorisation Institutional Investment
(FII) shall meet the capital
2. Bharat Bill `100 crore net-worth (to be Applicant must have domain requirements as applicable
Payment maintained at all times) experience in the field of bill under the extant
Operating Units collection for a minimum period Consolidated FDI policy
(BBPOUs) of one year. guidelines.
3. Trade 1) Minimum paid up equity 3) The Memorandum of
Receivables capital – ` 25 crore - Association (MoA) must
Discounting 2) Non-promoters, to have cover the specific activity.
System shareholding up to 10 per 4) Applicant shall submit a
(TReDS) cent of equity capital certificate in the prescribed
format from their Chartered
4. White label `100 crore net-worth (to be 1) ATMs to be deployed in the
ATM Operators following ratio: 1:2:3 for Metro & Accountants (CA) to
maintained at all times)
evidence compliance with
(WLAOs) Urban: Semi-urban: Rural
the applicable capital
Regions.
requirement
2) Among the various regions,
5) The entity must submit
the ratio will be in favour of rural
regions. If a WLAO deploys self-declaration and
undertaking from all the
adequate ATMs in a rural region,
Directors. Fit and Proper
it need not deploy ATMs in
criteria will be assessed by
metro, urban or semi-urban
RBI and its decision shall
regions to meet the ratio
requirements. If a WLAO deploys be final
ATMs in a semi-urban region, it 6) The overall financial
shall deploy adequate ATMs in a strength of the promoters /
rural region as per the ratio and entity; sound technological
may not deploy any ATM in a basis to support its
metro or urban region operations; management;
governance etc. shall be
5. Payment 1) `15 crore Net-worth for 1) Existing non-bank entities other important criteria.
Aggregators new PAs applying for offering PA services must apply
(PA) authorisation. A minimum for authorisation on or before
positive net-worth of `25 June 30, 2021. They can
crore to be achieved and continue their operations till they
maintained at all times by receive communication from RBI
the end of the third financial regarding the fate of their
year from the date of application. However, E-
receiving final authorisation commerce marketplaces
2) Existing PAs – to achieve providing PA services should not
`15 crore net-worth by continue this activity beyond the
March 31, 2021 and ` 25 deadline and if they desire to
crore by March 31, 2023 and pursue this activity they must
it shall be maintained at all apply before the deadline
times 2) It is mandatory for PAs to
adopt technology related
recommendations given in
Annex 2 of ‘Guidelines on
Regulation of Payment
Aggregators and Payment
Gateways’ dated March 17, 2020
3) NoC from relevant regulator
within 45 days of obtaining
clearance (if regulated by
financial sector regulator)

Eligibility Criteria
Sr Payment Financials Common to All (Except
No. System (Net-worth as per last Specific to Payment System Overseas Principal –
audited balance sheet) MTSS)
6. Overseas Minimum net worth of USD 1 1) The Applicant should be a
Principal – million. Relaxation could be registered entity, licenced by the
MTSS considered, if incorporated in Central Bank / Government or ----------NA---------
(Cross-border FATF member country and financial regulatory authority of
Money are supervised by the the country concerned for
Transfer – in- concerned Central Bank / carrying on Money Transfer
bound only) Government or financial Activities. The country of
regulatory authority. registration of the Overseas
Principal should be AML
compliant.
2) The arrangement should result
in considerably increasing access
to formal money transfer facilities
at both ends.
3) Entity should be well
established in the money transfer
business with a track record of
operations in well-regulated
markets
4) Entity should be registered with
the overseas trade / Industry
bodies.
5) Entity should have a good
rating from one of the
international credit rating
agencies
6) Entity should submit
confidential reports from at least
two of its bankers
7) Entity should submit a report
certified by independent
Chartered Accountants, regarding
steps taken to comply with anti-
money laundering norms in the
home/ host country
Point of Arrival (PoA) and Performance Metrices (PM)
18.4 RBI adopted a PoA and PM framework with a view to promote

efficiency of payment systems. PoA refers to the assessment of a payment
system over a time horizon to identify its relevance against certain
identified attributes. The assessment helps ascertain the suitability and
continued relevance of the payment system. PM examines performance
of a PSO over certain parameters like business plan submitted at the time
of application for authorisation, business and technical efficiency, contribution
to the payments ecospace, etc. Adoption and implementation of the
framework is expected to provide a robust environment that enables
innovation and proliferation of safe, secure and efficient payment systems
with adequate benchmarking of operators in terms of performance, utility,
expectations, etc.

18.5 The approach adopted is to (a) specify goal-posts for an authorised
payment system's PoA and PM based on which its continuance, or
otherwise, in the ecosystem can be decided, including the need for
addressing hurdles, if any, and / or facilitating its expansion, (b) define a
set of targets for identified parameters to be fulfilled by the participants at
the point of gaining access along with certain time based targets for
monitoring the efficiency and effectiveness of the payment system participants.
While 'a' above addresses the system-related aspects of performance, 'b'
takes care of the participant-related aspects.
18.6 All payment systems / entities at the time of commencement of

operation / authorisation would be assessed against the PoA / PM
attributes periodically after their commencement of operations. The period
of first assessment as well as periodicity of assessment may be decided
on a case to case basis by the Department, depending on the credentials
of payment system / entity and the sector in which it operates.
18.7 RBI has been evaluating new as well as existing systems and entities
based on certain expectations and parameters. The PM broadens the
scope of assessing the performance of the payment system entities. In a
way, PoA and PM formalises these yardsticks by documenting them, thus,
bringing in transparency and uniformity in examining the systems and
entities at periodic intervals.
Perpetual Validity for Certificate of Authorisation (CoA) issued to

PSOs
18.8 The RBI issues "on-tap” authorisation under the PSS Act to non-
banks issuing PPIs, operating WLAs or the TReDS, or participating as
BBPOUs. Authorisation (including renewal of authorisation) of such PSOs
has been largely for specified periods up to five years. The limited period
licences were found to lead to business uncertainty for PSOs and also
involved avoidable use of regulatory resources during the process of
renewal.
18.9 Over the years, Reserve Bank's oversight framework has developed
into a more mature and comprehensive system, which clearly lays out
oversight expectations and the methodologies adopted for oversight of

PSOs. The Reserve Bank has reviewed the policy and has started granting
authorisation for all PSOs on a perpetual basis, subject to certain
conditions. The perpetual validity of authorisation is expected to reduce
licensing uncertainties and enable PSOs to focus on their business which
will help enhance the payment ecosystem.
Introduction of cooling period
18.10 Cooling Period would be applicable for a period of one year in

situations where (a) Authorised PSOs whose CoA is revoked or not-
renewed for any reason; or (b) CoA is voluntarily surrendered for any
reason; or (c) Application for authorisation of a payment system has been
rejected by RBI; or (d) New entities that are set-up by promoters involved
in any of the above categories. Given the regulatory discomfort emanating
from such entities and to discipline them appropriately, it is desirable that
the entity be debarred from operating any payment system during the
duration of the cooling period.
_______

Chapter 19
Supervision
Oversight Framework for Financial Market Infrastructures (FMIs) and
Retail Payment Systems
19.1 The Committee on Payment and Settlement Systems (CPSS) and

International Organisation of Securities Commissions (IOSCO) had, in
April 2012, published 24 principles as part of its report titled "Principles
for Financial Market Infrastructures (PFMIs)". The principles apply to all
systemically important payment systems (SIPS), central securities depositories
(CSDs), securities settlement systems (SSSs), CCPs and TRs (collectively
"financial market infrastructures"). In line with this approach, the RBI
adopted the above international standards and in June 2013, issued a
policy document titled as 'Regulation and Supervision of FMIs regulated
by RBI' which detailed the criteria for designating an FMI, applicability of
the PFMIs to the FMIs, tools for oversight of FMIs and other related
aspects.
19.2 Since then, the country has witnessed continuous expansion in the
payment landscape not only in payment infrastructures but also in terms
of volume and value of digital payment transactions. With an aim to better
clarify RBI's oversight objectives and policies and in keeping with the
commitment made in Vision 2019-2021, a revised policy document titled
"Oversight Framework for FMIs and Retail Payment Systems" was released
on June 13, 2020. The revised framework broadly covers the legal
framework for oversight, definition and scope of oversight, oversight
activities, supervisory considerations that have arisen since the time of the
previous document and cooperation with other regulatory authorities, etc.
Offsite supervision
19.3 Off-site supervision of authorised payment systems is conducted

using various tools, such as (a) analysis of prescribed data /
information received on periodic basis from regulated entities, (b) fraud
monitoring / system of alerts, (c) regular meetings with authorised
PSOs, (d) market intelligence, and (e) oversight reports and surveys.

19.4 Presently, card payment networks, (other than NPCI) and Cross-
border Money Transfer (in-bound service) operators are regulated and
overseen through off-site supervision only as they are institutionalised in
foreign jurisdictions. These entities are, however, required to submit, on
an annual basis, a System Audit Report (SAR) of their entire systems,
including the domestic infrastructure. RBI continuously engages with these
entities to ascertain gaps, if any, in their risk assessments.
19.5 CCIL is an FMI and its oversight is done as per the oversight policy
for FMIs. The offsite supervision of CCIL is undertaken through the
following:
a) Self-Assessment: As a measure of enhanced transparency, CCIL is

required to disclose its self-assessment in compliance with the
PFMIs on an annual basis, as per the 'Disclosure Framework and
Assessment Methodology', prescribed in the PFMIs. CCIL also
publishes its quantitative disclosures on a quarterly basis as per the
public disclosure standards for CCPs.
b) Assessment by external experts: CCIL undertakes a review of its risk

models and risk management processes by external experts annually.
The report submitted by the external experts is examined by the
department.
c) External and / or internal audits of control measures: CCIL is required

to undertake audits on an ongoing basis to verify risk control
measures in existence, the suitability of such measures, effectiveness
of the risk controls and adherence to the risk control measures. CCIL
is required to submit to RBI the operational, technology and other
audit reports as prescribed along with the compliance measures on
a periodic basis. The scope and coverage of such audits are finalised
in consultation with RBI.
d) System of alerts: RBI has mandated CCIL to put in place a

mechanism for proactively reporting to it on a priority basis any
abnormal events / developments, aberration, delays, incidents, etc.,
at the earliest possible time. The system of alerts is in place for

shortages, defaults, margin calls, imposition of any restrictions on
members, etc., in any segment. This system of alerts helps track
various risk events in a timely manner to prevent any disruptions in
the functioning of CCIL.
e) Reports and Returns: RBI has prescribed periodic returns that are
submitted by CCIL. Further, adhoc returns are also called for as and
when necessary. This information / data are in addition to other
information furnished by the entity, such as, audit reports, balance
sheet, minutes of board meetings, etc.
f) Prior approval of changes: The offsite monitoring and surveillance

also includes assessment of any changes / amendments to the rules,
regulations, bye-laws, notifications, risk management framework of
the FMIs, to ensure that such changes / amendment are within the
accepted risk-management and efficiency standards. Similarly,
introduction of new products or changes in the structure or operation
of any existing product are assessed against the PFMIs and become
effective only after approval by RBI.
Onsite Inspection
19.6 Onsite inspection complements the offsite monitoring mechanism,

and are carried out on periodic basis as determined by RBI. It is based
on the risk profile of the entity derived from its annual self-assessment.
In addition to information furnished by the entity, market intelligence, if any,
is also considered during inspection.
19.7 Currently, RBI conducts onsite inspection of CCIL, NPCI, authorised

PPI issuers, White Label ATM Operators, ATM Network Operators, Instant
Money Transfer Operator and TReDS Operators. Of these, CCIL and NPCI
are assessed against the 24 PFMIs using the "Committee on Payments
and Market Infrastructures - International Organisation of Securities
Commissions (CPMI-IOSCO) - Assessment Methodology. Onsite inspection
of CCIL is conducted annually, NPCI biennially, and others either annually
or biennially or triennially depending on the size of their business and
volume / value of transactions handled by them.

Central Payments Fraud Information Registry (CPFIR)
19.8 With rapid advancement in the payment ecosystem and advent of

non-bank entities in the payment landscape, coupled with changing
technologies and digital consumer demands, new trends in payment
transaction frauds are coming to light. While payment system participants
and PSOs have put in place advanced security systems to protect
consumers, including real-time transaction analysis, behavioural biometrics
on devices, tracking technology, etc., to help identify and prevent potential
frauds, the payment industry continuously demands higher levels of fraud
prevention services and security technologies. It is essential to appropriately
capture information pertaining to all frauds relating to payment transactions
processed through payment systems which would help put in place active
risk management practices to fight online fraud on internet and on mobile
devices.
19.9 Accordingly, RBI has created CPFIR, a web-based reporting platform

to facilitate online payment fraud reporting by system participants.
19.10 The registry of all payment related frauds helps ascertain deficiencies
in the systems and processes, enable strengthening of existing controls
and helps in devising additional controls as part of sound and efficient risk
management processes. Faster dissemination of information on payment
frauds by RBI to system participants would facilitate introduction of
necessary safeguards and preventive measures to ensure that adequate
caution and controls are put in place by the system participants. The
aggregated fraud data will also be published to educate customers on
emerging risks.
Definition of Digital Payment Transactions and Dissemination of

Granular Payment System Data
19.11 RBI has been publishing data on transactions carried out using
various payment systems operated by authorised PSOs. In view of the
rapid developments in the payment ecosystem and evolution of new
systems, products and channels used to undertake digital payment
transactions. RBI reviewed the definition of digital payment transactions.
It also enhanced the scope and coverage of Payment System Indicators

published in its monthly RBI Bulletin to include recent payment systems
and also disseminate granular details of payment transactions. Further, the
payment transactions undertaken using different payment channels and
details of payment system infrastructure are also disseminated. The data
in the revised form and structure is being published in the RBI Bulletin from
the month of January 2020 onwards.
Scope of System Audit Report (SAR)
19.12 Authorised PSOs are mandated to carry out a System Audit on an

annual basis by a Certified Information System Auditor (CISA) qualified
auditor and registered with the ISACA or by a holder of a Diploma in
Information System Audit (DISA) qualification of the Institute of Chartered
Accountants of India (ICAI).
19.13 Payment landscape has experienced extensive leveraging of advanced

technology in facilitating processing of payment transactions by the PSOs
as well as their service providers / intermediaries / third party vendors and
other entities in the payment ecosystem. On the other hand, the number,
frequency and impact of cyber incidents / attacks have increased manifold.
In order to enhance the resilience of the payment systems and to bring
in standardisation and ensure that relevant areas of information system
processes and applications are covered, the scope of SAR was revised
in January 2020.
19.14 The enhanced scope broadly covers Information Security Governance,

Access Control, Hardware Management, Network Security, Data Security,
Physical and Environmental Security, Human Resource Security, Business
Continuity Management, System Scalability, IT Project Management,
Vendor / Third Party Risk Management, Incident Management, Change
Management, Patch Management, Log Management, Secure Mail and
Messaging systems, Mobile and/or other Input / Output Device Management
Policy, Security Testing and Source Code Review, Online Systems Security,
Mobile Online Services (applicable for entities offering services through
mobile applications), etc.
Penalty Framework
19.15 PSS Act empowers RBI to (a) impose penalty for a contravention

or a default and (b) compound contraventions of any of the punishable
offences under the Act. In order to bring in transparency, RBI reviewed and
revised the process of levy of penalty on authorised PSOs / banks under
the PSS Act, on January 10, 2020. The revised framework centres around
objectivity and transparency in the decision-making process. The decision
to impose penalty and calculation of the penalty amount is based on a set
of pre-defined objective criteria. Further, adequate opportunities are
provided to the PSOs / banks to present their case.
Business Continuity Plan (BCP)
19.16 New situations like failure of a major bank, a pandemic situation,

etc., bring out unique solutions and warrant an aggressive approach as
well. BCP plans get tested in live scenarios and for extended periods. Such
BCP plans include situations of non-availability of adequate and critical
resources, places of normal operations, etc.
19.17 In view of the situation arising out of COVID-19 in March 2020, a

host of unprecedented measures were taken to ensure seamless and
unhindered operation of not only centralised payment systems (RTGS and
NEFT) but also payment systems operated by other operators, like IMPS,
UPI, NACH, CTS, cards, etc. Coordinated efforts with Government, PSOs
and Regulated Entities (REs), including banks and non-banks, ensured
uninterrupted functioning of all PSS operating across the country. Further,
certain relaxations were given to REs to allow them to cope-up with the
restrictions in physical movement.
19.18 The day-to-day operations of the RTGS system were shifted to be

carried out from the Primary Data Centre (PDC). Staff performing critical
functions pertaining to centralised payment systems were isolated in a
quarantined environment at a hotel near the PDC with necessary travel
arrangements in place. The hotel, PDC and vehicles were sanitised
regularly to safeguard employee welfare. Two teams of staff, with an
additional team on permanent standby, ensured seamless operations.
Rotation of staff every fortnight after thorough screening by RBI in-house
doctors, facilitated unhindered operations.

19.19 Sustained efforts were undertaken by the department to ensure that
PSOs and their services were declared as 'essential services'. The
Government DBT payments to help the poor and marginalised commenced
on a large scale in April 2020 which was smoothly facilitated by the NACH-
APBS.
19.20 CCIL implemented business continuity measures by entering into an

arrangement with a hotel in the vicinity to provide accommodation exclusively
for its key staff personnel. Similar arrangements were also in place at the
on-city secondary site and the remote disaster recovery site with minimum
staff essential to take over in case of any disruption in the activities at the
primary site. The staff and participants were provided remote access to
the systems through Virtual Private Network (VPN) facility to facilitate
operations with skeletal staff working from office. Further, to minimise risks
and to ensure that market participants maintain adequate checks and
supervisory controls while optimising the thin resources and ensuring
safety of personnel, trading hours for various markets were reduced /
revised in April 2020.
Table 20: Performance during the Pandemic
Source: RBI Data
Note:
((i) Feb 2020 figures are considered as the base (100).
(ii) Months in green have Payment volume / value higher than the Pre-Covid-19 levels
indicating recovery in Payment Systems.

19.21 RBI has also put in place a Standard Operating Procedure (SOP)
to be followed when a bank is placed under All Inclusive Directions / or
Moratorium so that payment systems can operate without any disruption.
The SOP gets refined with every incident and is circulated amongst all the
stakeholder departments in the Reserve Bank for co-ordinated and
effective implementation in a seamless manner. The SOP was tested in
the incident of March 2020 and modified with experience gained which
ensured that payment systems operated smoothly after the November
2020 incident.
_______

Chapter 20
Customer Protection, Convenience, Complaint Redress

20.1 Customer interest has always been the overriding principle for RBI.
Some initiatives introduced decades ago in payment systems to safeguard
the interests of customers are valid even today. Mandating PAs to open
escrow accounts, AFA, e-mail / SMS alerts, digital ombudsman, etc., have
not only added security to payment transactions but also increased
customer confidence in PSS, thereby helping in increasing digital footprints.
Security for card transactions
20.2 Use of cards (both credit and debit) has been growing over the last
few years. Non-empirical evidences show that cards are the first mode of
on boarding a person into the digital fold. This makes it very important to
ensure safety and security of card transactions so that frauds are
minimised. To this end, RBI has been taking several measures to enhance
the security of card transactions which has helped in containing card
related frauds in India. These include the requirement of AFA for all online
or CNP transactions, need to obtain PIN for physical / face-to-face or CP
transactions, need to provide alerts to the cardholder for all card transactions,
irrespective of the amount and channel, etc.
Additional Factor of Authentication (AFA)
20.3 Authentication is important to prevent fraudulent transactions in the

e-Commerce environment. It improves (a) trust between the merchant and
the customer, and (b) security in a world where cyber security has become
a major issue. With effect from August 1, 2009, banks were mandated to
ensure that online transactions using credit and debit cards are authenticated
using AFA, the additional factor based on information not visible on the
card. This mandate applies to all transactions using cards issued in India,
for payments on merchant site where no outflow of foreign exchange is
contemplated.
20.4 RBI has also mandated PIN based authentication for all card transactions
at PoS terminals. This mandate for AFA / PIN is relaxed in case of PPI -
Mass Transit System (PPI-MTS) transactions and also for contactless

transactions for values up to ` 2,000/- performed using NFC-enabled EMV
Chip cards. The limit was subsequently revised to ` 5,000/- effective from
January 01, 2021.
20.5 To prevent fraudulent withdrawal at ATMs, RBI has mandated

requirement of PIN entry for every transaction, including balance enquiry
transactions.
EMV Chip and PIN cards
20.6 An EMV chip is an embedded microprocessor chip in payment cards

such as credit and debit cards which stores and protects cardholder data.
EMV chip technology was originally developed by Europay, Mastercard and
Visa (which is how the acronym EMV came to stay), with the EMV chip
storing data on integrated circuits rather than in magnetic stripes. EMV chip
card transactions improve security against fraud compared to magnetic
stripe (magstripe) card transactions that rely on the holder's signature and
visual inspection of the card to check for features.
20.7 RBI mandated the use of only EMV Chip and PIN based debit and
credit cards with effect from January 1, 2019 and banks were advised to
disable all magstripe cards issued earlier. Further, banks and WLAOs have
been advised to ensure that all ATMs / micro-ATMs (which are enabled
to handle card-based transactions) deployed by them are enabled for
processing EMV Chip based transactions.
Online Alerts
20.8 In order to enhance the security of online card transactions, with effect
from August 1, 2009, banks were required to put in place "Online Alerts"
to the cardholder for all CNP transactions of the value of ` 5,000/ and
above. This measure has been generally welcomed by customers, which
enabled them to take prompt action if the card was misused and went a
long way in arresting further perpetration of such fraudulent transactions.
To further strengthen the system, banks were mandated to put in place
with effect from June 30, 2011, a system of online alerts for all types of
transactions irrespective of the amount, involving usage of cards at various
channels.

Tokenisation
20.9 While performing a card transaction, a customer either enters the card
details manually (for e-commerce transactions) or swipes / dips the card
at a PoS terminal. There are situations when the card holder hands over
the card to a staffer of a merchant establishment (say, a restaurant) for
payment. There is a possibility of data breach and the card holder's data
could be at risk and susceptible to misuse. One of the means of enhancing
security is "Tokenisation", a process whereby a card's 16-digit Primary
Account Number (PAN) is replaced with a unique alternate code (called
as "token"). This token is unique for a combination of card, token requestor
(i.e., third party app provider) and device (i.e., mobile, tablet, etc.).
Thereafter, payment transaction is performed using the token, instead of
the actual card data. Thus, in a tokenised card transaction, the actual card
details are neither sought for nor captured at the merchant's end. This
enhances safety and security of the card transaction.
20.10 In January 2019, RBI issued a framework for tokenisation of card

transactions which allowed all authorised card networks to offer tokenisation
services, irrespective of the app provider, use case, etc., subject to certain
conditions and responsibilities. The use of tokenisation, however, does not
dilute the instructions in place for AFA. Registration for tokenisation service
is purely voluntary for customers and they need not pay any charges for
availing this service. For the present, this facility is offered only through
mobile phones / tablets.
Facility to switch on / off transaction rights
20.11 RBI continuously evaluates the systems in place to provide more

safety to cardholders and the card transaction chain. The following
additional safety measures were mandated that have come into effect from
October 1, 2020:
a) At the time of issue / re-issue, all cards (physical and virtual) should
be enabled for use only at ATMs and PoS devices within India.
b) For existing cards, issuers may take a decision, based on their risk
perception, whether to disable the CNP / online (domestic and
international) transactions, CP / face-to-face (international) transactions

and contactless transaction rights. Existing cards which have never
been used for CNP / international / contactless transactions shall be
mandatorily disabled for this purpose.
c) The issuers shall provide to all cardholders a 24x7 facility to switch
on / off and set / modify transaction limits for all types of transactions,
through multiple channels - mobile application / internet banking /
ATMs / Interactive Voice Response (IVR), as also at branches /
offices; alerts / information / status, etc., shall be sent to cardholders
as and when there is any change in status of the card.
Positive Confirmation
20.12 In order to remove any ambiguity for funds transferred through

NEFT, an element of positive confirmation was introduced with effect from
March 1, 2010. The new message format was introduced to relay to the
originating bank an acknowledgment containing the date and time of credit,
immediately after the credit is afforded to beneficiary accounts. The
originating banks, on receipt of positive confirmation from the destination
banks, are required to initiate a mobile SMS or generate an e-mail to the
originator to convey the fate of the transaction. Positive confirmation was
mandated for RTGS with effect from January 15, 2019. This is a unique
feature in NEFT and RTGS systems in India.
Data Storage
20.13 There has been a considerable growth in the payment ecosystem

in India, particularly in the realm of digital transactions. Ensuring safety and
security of payment systems has always been the cornerstone of RBI's
approach towards payment system regulation and development.
20.14 Towards this end, and to have unfettered supervisory access to data
stored with the system providers, as also with their service providers /
intermediaries / third party vendors and other entities in the payments chain,
RBI has, vide circular dated April 6, 2018 on "Storage of Payment System
Data", mandated all system providers to store the entire data relating to
payment systems operated by them in systems only in India. This data
pertains to full end-to-end transaction details and information processed as
part of the payment instruction. For the foreign leg of the transaction, if any,

the data can also be stored in the foreign country, if required.
Harmonisation of Turn-Around Time (TAT) for failed transactions
20.15 Many customer complaints are due to unsuccessful or failed

transactions (caused by disruption in communication links, non-availability
of cash in ATMs, time-out of sessions, non-credit to beneficiary's account
due to various causes, etc.). The instructions on TAT and the compensation
framework cover failed transactions at ATMs and non-credit / delayed
return of transactions through NEFT and RTGS. Since there were no
prescriptions for TAT for other authorised payment systems such as cards,
UPI, IMPS, etc., there was no uniformity in reversing failed transactions.
20.16 Therefore, in September 2019, RBI introduced a framework on TAT

and customer compensation for resolution of failed transactions across all
authorised payment systems. The framework seeks to ensure, (a) reversal
within a specified time without the need for lodging of complaint by the
customer, and (b) compensation to customer for delay in reversal of such
failed transactions, which are not directly attributable to the customer.
Domestic transactions i.e., those where both the originator and beneficiary
are within India, are covered under this framework. The salient features
of the framework are:
a) the prescribed TAT is the outer limit for resolution of failed transactions;
b) definition of a failed transaction includes credits which could not be

effected to the beneficiary due to lack of full information or lack of
proper information and delay in initiating a reversal transaction;
c) wherever financial compensation is involved, it shall be effected to

the customer's account suo moto, without waiting for a complaint or
claim from the customer;
d) if the transaction is a 'credit-push' funds transfer and the originator's

account is debited without a credit to the beneficiary account, a
reversal should be effected within the prescribed time period failing
which, a penalty has to be paid to the beneficiary;
e) if there is delay in initiation of a transaction at the originator bank's

end beyond the TAT, penalty is to be paid to the originator.

e-Mandates / Standing Instructions - Cards / UPI / PPIs
20.17 A framework to facilitate e-mandates on cards and PPIs was issued

in August 2019 to encourage digitisation of recurring payments like monthly
subscriptions, insurance premia payments, systematic investment plans,
bill payments, etc. It couples convenience with adequate safety like AFA
for the first transaction, e-mandate registration, modification and revocation.
This framework was subsequently extended to cover UPI based payments.
Cash withdrawals at merchant locations using PoS and UPI
20.18 For over a decade, banks had been permitted to extend small value
"cash withdrawal" facilities at PoS devices at merchant establishments.
Under this facility, using debit cards and open-loop prepaid cards, banks
can, subject to approval by their respective Boards, permit cardholders to
use PoS devices deployed by them for withdrawing up to ` 2,000/- per day
per card in Tier III to VI centres (` 1,000/- per day per card at Tier I and
II centres). The charges, if any, levied on the cardholders for this purpose
should not exceed 1% of the transaction amount at all centres irrespective
of the withdrawal limit. This facility provides an additional option to
cardholders to withdraw cash from nearby merchant establishments; the
merchants may earn extra income apart from circulating their cash
collections without visiting a bank.
20.19 The facility of cash withdrawal at merchant locations was extended

to UPI as well. It seeks to provide another interoperable solution for making
cash available for contingent requirements of individuals as also enable
better cash management avenues to merchants.
Digital Literacy - e-BAAT
20.20 Digital payments penetration and adoption need to be supported by

digital literacy. In terms of PSS Vision 2019-21, RBI is committed to
encourage greater use of electronic payments by all sections of the society
to increase the digital footprints and achieve a "less-cash" payment
ecosystem. As part of a customer centric approach, RBI's focus is on
enhancing customer education and awareness, so that customer confidence
in payment systems is reposed with usage combined with better awareness
of the product and processes.

20.21 A well-informed customer base would also facilitate faster migration
away from cash and other paper-based payments. To achieve this, it is
RBI's endeavour to enhance customer awareness through structured
electronic Banking Awareness and Training (e-BAAT) programs, in collaboration
with all the stakeholders. The focus of e-BAAT program is basically to
educate the masses to shift their focus of payments from paper to
electronic payments through different modes. RBI is also creating customer
awareness through press, A-V media and social media platforms e.g., RBI
Kehta Hai and arranging media workshops.
Intervention in charges
Merchant Discount Rate (MDR)
20.22 MDR refers to the fee charged by an acquiring bank (bank that sets
up the payment infrastructure) for providing the facility of accepting
payments performed using cards, UPI, BHIM Aadhaar Pay, PPIs, etc. This
fee is payable by merchants and MDR so charged, is divided among
issuers (called as issuer interchange), card networks (called as network
fee), acquirers and any other entity involved in payment transaction chain
(like payment aggregators). Charging MDR is considered necessary to
ensure viability of banks / service providers in the payments chain.
20.23 RBI issued a framework for MDR for debit card transactions which
came into effect from September 2012. This framework was subsequently
revised in 2017. The revised framework categorises merchants based on
turnover, adopts a differentiated MDR for QR-code based transactions and
specifies a ceiling on the maximum permissible MDR for both CP and CNP
transactions. This framework is not applicable for credit cards, PPIs, UPI,
BHIM Aadhaar Pay, etc.
20.24 As stated earlier, MDR should be borne by merchants and not

passed on to the customers. After demonetisation, to promote digital
transactions, the Central Government, till December 2019, reimbursed
MDR charges on transactions with values up to ` 2000 made through debit
cards, BHIM UPI and Aadhaar-enabled payment system. As per Central
Government announcement, no charge, including MDR, shall be applicable
on or after January 1, 2020 on payment made through prescribed electronic

modes, viz., debit card powered by RuPay, UPI (BHIM - UPI) and UPI QR
Code (BHIM - UPI QR Code).
ATM Interchange
20.25 In order to enable citizens to have access to cash withdrawals on

an 'anytime and anywhere' basis, ATMs have been deployed by banks
during the last two decades. ATMs have gained prominence as a delivery
channel for banking transactions in India. Commensurate with the branch
network, larger banks have deployed more ATMs. Most banks have
entered into bilateral or multilateral arrangements with other banks to have
inter-bank ATM networks as banks prefer to deploy ATMs at locations
where they have a large customer base or expect considerable use. It is
but natural that banks levy charges for usage of the infrastructure set up
by them. These charges, called ATM interchange charges / fees, are often
passed on to the customers.
20.26 The charges levied on customers vary from bank to bank and also
vary according to the ATM network that was used for the transaction.
Consequently, a customer is not aware, beforehand, of the charges that
would be levied for a particular ATM transaction, while using an ATM of
another bank. To bring about transparency in charges, in March 2008, RBI
brought out a framework of service charges, according to which, the
charges that can be levied by banks for use of ATMs are as follows:
Type of transaction Free Customer Interchange

charges Fee
Off-Us Non-metros – up to Ceiling of 20 per Financial
transactions(including 5 per month transaction (for all transactions:
financial and non- Metros – up to 6 transactions) 15
financial) per month Non-financial
On-Us transactions 5 per month (all transactions:
centres) {over and 5
above the non-
financial
transactions}
20.27 With increase in transaction cost at ATMs, and the limits on the
amounts that can be charged from customers, banks are of the view that
ATM operations have become a loss-making activity for them. Even though

there is still an unmet demand for ATMs in India, more so in the semi-urban
and rural (SURU) areas, the total number of ATMs deployed has remained
stagnant over the last two years. On the other hand, customers complain
that banks levy charges on any service offered by them through ATMs.
20.28 A committee was constituted in July 2019 under the Chairmanship

of the Chief Executive, IBA to review the entire gamut of ATM charges and
fees with focus on the interchange fee structure. The committee included
representatives NPCI, SBI, HDFC Bank Ltd., Confederation of ATM
Industry and Tata Communications Payment Solutions Ltd. The committee
submitted its report in December 2019 and its recommendations are being
examined by RBI for implementation.
Digital Ombudsman
20.29 The grievance redressal mechanism of a system is a measure of
its efficiency and effectiveness as it provides important feedback on the
working of that system. The grievances relating to digital mode of financial
transactions accounted for 19 per cent of total complaints during 2016-17
which went up to 28 per cent till end June 2018, mostly due to inclusion
of deficiencies in mobile banking service as a ground of complaint under
the scheme with effect from July 1, 2017. Considering the growing trend
and increasing complexity of such complaints along with the emergence
of non-bank service providers in the digital payment space, RBI introduced
the Ombudsman Scheme for Digital Transactions on January 31, 2019 in
order to have a dedicated scheme for redressal of such grievances.
20.30 The Ombudsman Scheme for Digital Transactions facilitates the
redressal of complaints regarding digital transactions undertaken by
customers of a Payment System Participant viz., any person other than
a bank participating in a payment system (banks are covered under the
Banking Ombudsman Scheme). It is an expeditious and cost-free apex
level mechanism for resolution of complaints regarding digital transactions.
20.31 For redressal of grievance, the complainant must first approach the
system participant concerned. If the system participant does not reply
within a period of one month after receipt of the complaint, or rejects the
complaint, or if the complainant is not satisfied with the reply given, the
complainant can file the complaint with the Ombudsman for Digital

Transactions within whose jurisdiction the branch or office of the System
Participant complained against, is located. For complaints arising out of
services with centralised operations, the same should be filed before the
Ombudsman for Digital Transactions within whose territorial jurisdiction the
billing / declared address of the customer is located.
Internal Ombudsman
20.32 The advent of non-bank entities in the payment landscape has
helped further advance the rate of adoption of digital payments in the
country. To build customer confidence in the system and safeguard the
interest of the consumers, RBI mandated that large non-bank PPI issuers
(with more than one crore outstanding PPIs) should put in place an Internal
Ombudsman Scheme. The scheme was intended to ensure that complaints
of customers are redressed at the level of the PSO itself by an authority
placed at the highest level of the PSOs grievance redressal mechanism.
The eligible PSPs were required to make the scheme operational by
January 20, 2020. The Internal Ombudsman Scheme for non-bank System
Participants was put in place under section 18 of the PSS Act.
Online Dispute Resolution (ODR)
20.33 Increase in number of complaints and disputes is an expected
outcome of the exponential increase in number of digital transactions. The
most efficient option to handle such instances, however low in proportion
they may be, is to have recourse to technology-driven dispute redressal
mechanisms that are rule-based, transparent, customer-friendly and involve
minimum (or no) manual intervention. Given the complexity in implementing
such an ODR System across various payment systems, a phased approach
by way of implementing an ODR System for failed transactions for all
authorised Payment Systems was announced in August 2020 with PSOs
required to implement the same by January 01, 2021. Based on the
experience gained ODR arrangement would later be extended to cover
disputes and grievances other than those related to failed transactions.
_______

Chapter 21
Encouraging Innovation
21.1 The modes of making payments is changing fast and evolving
continuously. The payments options have changed faster in the past 15
years than in the previous 150 years and every innovation has resulted
in a movement away from cash. Innovation is making payments increasingly
convenient, instantaneous and ubiquitous. RBI's endeavour has always
been to encourage innovation, especially in the payments space.10
FinTech
21.2 FinTech stands for financial technology and describes technologically

enabled financial innovations. The technology enabled products enhance
financial services by increasing efficiency, reducing cost and providing
diversity in products. FinTech firms are redefining the way companies and
consumers conduct transactions daily. In India, FinTech has the potential
of providing workable solutions to problems like low penetration, scarce
credit history and cash driven transaction economy encountered by
traditional financial institutions.
21.3 RBI Inter Regulatory Working Group on FinTech and Digital Banking
had categorised FinTech innovations broadly into the following areas, viz.,
(i) Payments, Clearing and Settlement, (ii) Deposits, Lending, Capital raising,
(iii) Market provisioning, (iv) Investment Management and (v) Data Analytics
and Risk Management. In India, FinTech companies are not competing with
banks but are collaborating with them by putting in place Business to
Business (B2B) models and thus acting as ecosystem enablers.
21.4 One of the classic examples of FinTech in the payments space is the
UPI platform, an application based electronic payment system enabled
through a smart phone that uses a registered virtual address to make or
receive payments which has revolutionised the mobile payments arena.
10
"Banks have been at the forefront of adopting technology. Innovations such as faster settlement
systems, internet banking and payment banks have made banking much easier for a customer. Global
admiration which indigenously developed United Payment Interface has drawn is a tribute to leadership
provided by Reserve Bank of India and all Indians can be proud of this. I am certain that banks are
keenly looking at new emerging technologies to maintain high standards. I trust Reserve Bank of India
is also providing necessary guidance, as well as addressing the issue of proper safeguards in adoption
of technology." (Hon'ble President of India, February 2020)

UPI platform allows non-bank FinTech players to on-board bank customers
and offer payment services. There are currently over 40 non-bank third
party applications of various merchants live on the UPI platform. UPI was
launched in August 2016, and with over 207 banks live, it has witnessed
over 200 crore transactions per month since October 2020.
Regulatory Sandbox
21.5 RBI announced the opening of first cohort under the Regulatory
Sandbox (RS) on November 4, 2019 with 'Retail Payments', as its theme.
This is expected to spur innovation in digital payments space and help in
offering payment services to the unserved and underserved segment of
the population. Migration to digital modes of making payments can obviate
some of the costs associated with a cash economy and can give customers
a friction-free experience.
21.6 The innovative products / services which, were considered for

inclusion under RS are:
a) Mobile payments including feature phone-based payment services:

General innovation in mobile payment services has focused on or
supported app-based access, limited to smartphones and similar
devices. There is a need to innovate payment services for feature
phones to provide the necessary thrust towards enhanced adoption
of digital payments by various strata of society.
b) Offline payment solutions: Consumer behaviour has been driving

growth of digital payment systems as more and more consumers are
embracing mobile technology. Though mobile internet speed has
risen, connectivity issues remain unresolved in large areas. Therefore,
providing an option of off-line payments through mobile devices for
furthering the adoption of digital payments is required.
c) Contactless payments: Contactless payments, while decreasing the

time taken for payment checkout, also ease payments for small ticket
transactions. Tokenisation technologies often form the basis of facilitating
seamless e-commerce experiences fueled by mobile and other
connected devices. The rapid growth in devices provides a significant
opportunity for payments through any form factor and anywhere.

21.7 Out of the 32 applications received under the first cohort, 6 were
selected for the “test phase”. 2 of the entities commenced testing from
November 16, 2020 with the other entities entering the test phase by
December 21, 2020.
21.8 RBI subsequently announced the opening of the second cohort under
RS on December 16, 2020 with the objective to spur innovations capable
of recasting the cross-border payments landscape by leveraging new
technologies to meet the needs of a low cost, secure, convenient and
transparent system in a faster manner. The window to submit applications
under the second cohort is open till February 15, 2021.
PSS Innovation Contest
21.9 RBI conducted a PSS Innovation Contest in collaboration with IDRBT.

The objective of the contest was to provide a platform to encourage,
recognise and promote innovations and ideas in the PSS arena as well
as foster new developments by entrepreneurs, start-ups and similar entities
in the payments space. The themes covered as part of the contest were
(i) offline payments, (ii) automated online dispute redressal systems, (iii)
safety and security in payment systems, (iv) payment options for feature
phone users, (v) simple and easy KYC, (vi) payment systems data
analytics, (vii) cross-border remittances, (viii) next-gen payment modes,
(ix) instrument-less payment systems, (x) innovative confirmation and
settlement modes for payment transactions, and (xi) automated payment
processing. The shortlisted applications were invited to present their
innovations to an eminent jury. The outstanding innovators were awarded
prizes and all shortlisted applicants were provided certificates of appreciation.
Innovation Hub for the Financial Sector
21.10 PSS do not work in isolation. They have forward and backward
linkages with the whole economy and act as catalysts for the financial
sector. It is, therefore, incomplete to consider innovations for the payment
systems alone without having a view for the financial sector as a whole.
Payment systems are not an end in itself but a means to achieve wider
financial inclusion, betterment of the society, efficient banking services,
business continuity at times of emergency, etc.

21.11 RBI has set up an innovation hub (Reserve Bank Innovation Hub -
RBIH) that would create internal capabilities by building applied research
oriented, project specific teams with expertise on latest technology. This
will facilitate setting up an innovation ecosystem for exchange of innovative
ideas and providing an environment where the ideas can be prototyped,
tested and certified for wider usage. Such a hub will be on the lines of the
innovation hubs developed by various organisations across the world. The
Hub will be guided by a Governing Council under a Chairman; Mr.
Senapathy (Kris) Gopalakrishnan is the first Chairman of RBIH.
_______

Chapter 22
Domestic, Regional and International Coordination

Domestic Co-ordination
22.1 PSS Vision 2019-2021 envisages better co-ordination among various

inter-regulatory bodies to remove frictions in regulation and ease system
operator / customer comfort. The endeavour is to have a co-ordinated
approach to regulation and supervision within RBI and also with various
other regulators. RBI, therefore, has set up two separate committees, (i)
Inter-regulatory coordination committee comprising sectoral regulatory
authorities, viz., Securities and Exchange Board of India (SEBI), Insurance
Regulatory and Development Authority (IRDA), Telecom Regulatory Authority
of India (TRAI), Ministry of Electronics and Information Technology (MeITY)
and Department of Telecommunications (DOT); and (ii) Inter departmental
coordination committee comprising the various regulatory and supervisory
departments of RBI.
22.2 The Committees are expected to meet once every quarter to discuss
the ways to augment digital payments and other related developments /
issues. Apart from co-ordinating on regulation and supervision related
matters of payment system, the committees will also look into improving
the payment system security and implementation of the recommendations
of the CDDP and co-ordinate as and when needed to enhance regulatory
co-operation and sort out variances in guidelines / instructions issued by
respective regulators.
Global Outreach of Payment Systems
22.3 There is scope for enhancing global outreach11 of the payment

systems, including remittance services, through active participation and co-
operation in international and regional fora by collaborating and contributing
to standard setting.
22.4 UPI has been a huge success in India. In a little over 4 years since
its launch in 2016, its growth, in terms of volume has eclipsed all other
11
"There is considerable interest at International fora to understand and learn from our experience in
furthering digital payments and we are very glad to share and collaborate."
(Shri Shaktikanta Das, Governor RBI, February 2020)

payment modes. The UPI model has unique features like open and
interoperable platform, two factor authentication, facility for PSPs to build
on top of existing infrastructure, multiple bank accounts in a single
application, e-mandate feature, compatibility with bank accounts and
wallets, etc., that have made it appealing to other nations also. The growth
of domestic card network, RuPay, also provides an opportunity for its global
expansion.
22.5 RBI's PSS Vision 2019-21 envisaged enhancing global outreach of

its payment systems, including remittance services, through active participation
and co-operation in international and regional fora by collaborating and
contributing to standard setting. RBI, in close collaboration with the
Government and NPCI, is working in the direction of expanding the reach
of UPI and RuPay globally. To bestow undivided attention towards this goal,
NPCI has incorporated a wholly owned subsidiary for international business
(styled NPCI International Payments Limited). While RuPay cards are
being accepted the world over, the issuance of RuPay cards in Bhutan has
been facilitated. A soft launch of UPI was done in Singapore, while its roll-
out is in advanced stages in South Korea and UAE.
22.6 Globally there has been lot of interest in UPI. BIS has expressed
interest in working with RBI towards building a prototype of the system that
could be replicated and scaled up in other countries to realise the potential
of UPI as a public good.
International Coordination
Committee on Payments and Market Infrastructures (CPMI)
22.7 CPMI is a committee formed under the BIS with the objective to
promote safety and efficiency of payment, clearing, settlement and related
arrangements, thereby supporting financial stability and the wider economy.
CPMI is a global standard setting body that aims at strengthening
regulation, policy and practices through central bank cooperation. The
CPMI also monitors and analyses developments in these areas, both within
and across jurisdictions.
22.8 RBI is a member of CPMI and actively participates in various task

forces and working groups formed by the CPMI in the area of PSS as well

as FMIs. RBI contributes in undertaking assessments of other member
jurisdictions and also participates in surveys by providing inputs on the
features of systems operating in India. RBI is also involved in drafting and
reviewing consultation and discussion papers drafted by CPMI. Further, the
statistics on PSS operating in India are also shared with CPMI for
publication in the Red Book statistics which contains PSS statistics of
member countries.
22.9 The guidance released by CPMI on FMIs and payment systems is

adopted by RBI and the measures are implemented to ensure adherence
to the same. The progress of implementation of the measures in India is
monitored through participation in surveys for progress monitoring and
implementation circulated by the CPMI.
22.10 As a member of CPMI, RBI attends the periodic CPMI meetings

where apart from discussing the progress of various work streams of the
CPMI, the developments in member countries are also presented to other
members. RBI also is a member of various working groups constituted by
CPMI and actively contributes to the papers published by CPMI.
BRICS
22.11 A Special Task Force on Payment Issues has been constituted by

BRICS to work out a common approach to developing a payment
infrastructure that would be independent from traditional methods of
financial messaging exchange. RBI has nominated two officers to the Task
Force.
SAARC Payments Council (SPC)
22.12 India is currently in the chair of SPC. Payment Systems statistics

and developments of all the countries are collated and hosted on SPC
website, which is maintained by RBI. The idea of a Single Harmonised
Payments Mechanism for SAARC is being actively discussed. Since the
various SAARC countries are at different levels of development, it was
decided that member countries will first assess the standards in their
country to see if they have reached a critical level of maturity before taking
a call on integration.

SWIFT Oversight Forum (SOF)
22.13 SWIFT is a cooperative society registered under Belgian law and

is owned and controlled by its shareholders. The National Bank of Belgium
(NBB) is the lead overseer of SWIFT, and is supported by the G-10 central
banks. In SOF, the G10 central banks are joined by other central banks
from major economies, viz., Bank of Korea, Bank of Russia, Central Bank
of the Republic of Turkey, Hong Kong Monetary Authority, Monetary
Authority of Singapore, People's Bank of China, Reserve Bank of Australia,
Reserve Bank of India, Saudi Arabian Monetary Agency and the South
African Reserve Bank.
22.14 SOF provides a forum for the G-10 central banks to share information
on SWIFT oversight activities with a wider group of central banks. The
oversight primarily focuses on ensuring that SWIFT has effective controls
and processes to avoid posing a risk to the financial stability and the
soundness of financial infrastructures. RBI as a member of the SOF
actively monitors the developments and security controls put in place by
SWIFT. RBI also ensures that all SWIFT users in India adhere to and
comply with SWIFT's Customer Security Program. Any issues faced by
banks / entities using SWIFT in India are taken up in the SOF for discussion
and resolution.
LEI Regulatory Oversight Committee
22.15 LEI-Regulatory Oversight Committee (LEI-ROC), established in

2013, is the body responsible for regulatory oversight of the Global LEI
System, involving a group of 71 public authorities and 19 observers from
more than 50 countries, LEI-ROC is comprised of Plenary, Executive
Committee, Committee on Evaluation of Standards and other working
groups. Global LEI Foundation (GLEIF) is tasked to support the implementation
and use of LEI through Local Operating Units (LOUs), which are authorised
by GLEIF to issue LEIs. Currently, RBI is one of the Vice-Chairs of LEI-
ROC.
22.16 ROC has been tasked to coordinate and oversee the Global LEI
System since 2012. In 2019, the FSB identified ROC to become the
International Governance Body (IGB), with an expanded mandate for

governance of the globally harmonised Unique Transaction Identifier (UTI),
Unique Product Identifier (UPId) and Critical Data Elements (CDEs). After
taking note of the appropriate adjustments in ROC's existing governance,
the FSB transferred all governance and oversight responsibilities of the
UTI, UPId and CDEs to the ROC, with effect from October 1, 2020. Further,
as IGB of the UTI, UPId and CDE, the ROC became the overseer of the
designated UPId service provider, The Derivatives Service Bureau.
_______

Chapter 23
Benchmarking India's Payment Systems

23.1 The past decade has witnessed several innovations in retail payments
across the globe including India. Benchmarking is necessary to gauge
India's progress vis-à-vis payment systems and instruments in major
countries which would give further impetus to the planned efforts for
deepening the digitisation of payments.
23.2 A comprehensive exercise for benchmarking India's Payment Systems

was undertaken by selecting a mix of 21 countries [including advanced
economy countries, Asian economies and BRICS (Brazil, Russia, India,
China and South Africa)] nations spread across all the continents where
payment systems are considered robust, diverse and efficient. The countries
included Australia, Brazil, Canada, China, France, Germany, Hong Kong,
India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, Singapore,
South Africa, South Korea, Sweden, Turkey, United Kingdom and the
United States of America.
23.3 Payment Systems were rated on the basis of categories: (i) "Leader":
ranked 1st or 2nd or 3rd; (ii) "Strong": in the top rungs of the countries
other than the leaders (4th to 9th); (iii) "Moderate": ranked in the middle
(10th to 15th); and (iv) "Weak": in the lowest rungs (16th to 21st).
23.4 The objective of the benchmarking exercise was to provide an

understanding of the payment systems in place in India and how their
usage preferences compare with other countries. It was also a starting
point for a meaningful analysis of the efficiency levels of India's payment
systems.
23.5 The benchmarking was done over a range of 21 areas and 41

indicators as indicated below. A snapshot of India's position is as follows:

Rating Indicator Area
Leader Regulation of costs of payment systems Regulation
Features available in Cheque instruments Cheques
Number of debit cards issued Debit and Credit Cards
Number of ATMs deployed across the country. Per capita Cash & ATM
cash withdrawal at ATMs
Share of Credit Transfers in payment systems Credit transfers
Availability of alternate payment systems; e-Money
Share of e-Money in payment systems
Citizen to Government (C2G) e-payments; Business to Government e-payments
Government (B2G) e-payments; Government to Business
(G2B) e-payments
Oversight by the Central Bank Oversight
Cross-border personal remittance flows Cross-border Personal
Remittances
Strong Laws in place and scope of regulation Regulation
Cash in Circulation per capita Cash
Number of Point of Sale (PoS) terminals deployed across the Debit and Credit Cards
country
Volume and growth of Credit Transfers Credit transfers
Real Time Gross Settlement System (RTGS) Large Value Payment
Systems
Fast payment systems available in the country Fast payments
Volume and growth of e-Money e-Money
Mobile and Broadband subscriptions Digital Infrastructure
Customer safety and Authentication Standards; Customer Protection &
Ombudsman scheme for Complaints Redress Complaint Redress
Central Counterparty operational in the country Securities Settlement &
Clearing System
Moderate Cash in Circulation as percentage of GDP Cash
Overall Payment Systems transactions volume and growth; Payment Systems
Value of payment systems transactions to cash in circulation Transactions
Number of credit cards issued Debit and Credit Cards
Debit and Credit Card usage at PoS terminals and online Debit and Credit Cards
Presence of domestic Card Network and its share Domestic Card Network
Government e-payments in the country; Government to Government e-payments
Citizen (G2C) e-payments
Regulation of Payment Aggregators Aggregators
Costs of cross-border personal remittances Cross-border Personal
Remittances
Weak Rate of decline of cheques; Ratio of Cheque volume vs Cheques
payment systems volume
Share of debit and credit card payments in payment systems; Debit and Credit Cards
Number of people per PoS terminal
Value of debit and credit card payments to cash in circulation Cash vs Debit and
Credit Cards
Number of people per ATM; Ratio of ATM Withdrawal vs cash Cash & ATM
in circulation
Volume and year on year growth of direct debits; Share of Direct Debits
direct debits in payment systems
Digital payment of utility bills; Public Mass Transportation Digital Utility Payments
systems in the country
Availability of channels and operators for cross-border Cross-border Personal
personal remittances Remittances

Chapter 24
Challenges
Weaning away from cash
24.1 Cash is all pervasive as it is perceived to provide anonymity, flexibility,

convenience and swiftness of making payment; finality of payment, without
any default risk; and high level of liquidity and acceptability.
24.2 Notwithstanding the above advantages of cash payments, a recently

published report by RBI, titled, "Assessment of the progress of digitisation
from cash to electronic", (ref:https://www.rbi.org.in/Scripts/
PublicationsView.aspx?id=19417) stated that India is progressively shifting
to electronic payments at a rapid pace. It is on account of factors like trust
(aided by measures like AFA), consumer confidence (no default risks and
settlement in central bank books of accounts), low cost of access and
convenience (easy to use mobile based payment system products), that
have been brought in the digital payments by the efforts of the regulator
and participants over a period of time. But still there is a long road ahead
for migration of the country from predominantly a cash-based economy to
a predominantly digital economy which is a work in progress.
Digital Financial Awareness and Digital Financial Literacy (DFA and

DFL)
24.3 While there has been growth in adoption of digital payments across
the geographies and cross-sections of the society, there is differential rate
of adoption, owing to lack of DFA and DFL across the spectrum. A lot of
efforts have been put on this front by the regulator and various PSOs
through awareness campaigns like 'RBI Kehta Hai' and e-BAAT, among
others.
24.4 Considering the diversity of users in the payment ecosystem, there

is still a long road to be travelled, especially across the geographies (Tier
III-VI centres) and societal cross-sections (say senior citizens and migrant
workers). A targeted approach in DFA and DFL is, therefore, required to
cater to these potential areas and probable user segments which will
augment the efforts to attain the desired level of digital payment adoption.

Digital payment Products for users across the spectrum
24.5 While there are options in digital payment products for a smartphone
user (mobile banking, internet banking, UPI, IMPS, digital wallets, etc.),
there is a gap area in terms of digital payment products for the non-
smartphone user. Even though USSD caters to this segment, it is only in
a limited way as only certain transaction with low limits are allowed on this
platform due to safety issues. There is scope for innovation which will offer
digital payment products for the non-smartphone users who though
declining, would still number around 50 crore by 2022 (according to
ASSOCHAM-PwC study- December, 2018).
Customer Protection and Security of Digital Payments
24.6 While adequate measures are prescribed and adopted by PSOs as

they provide digital payment platforms and products, there are instances
of frauds, mostly due to customer vulnerability or sometimes on account
of system breaches. This leads to apprehension in new users to move
towards the digital payments as also makes it difficult to retain those
customers who had a bad experience. Steps such as zero customer
liability, switch-on / switch-off of digital transactions and digital ombudsman
have been taken as customer protection measures to restore customer
confidence and limit the liability of the customer. The high cost of
implementation of cyber security measures leads to a tendency of an
adhoc approach which become points of vulnerability leading to instances
of system breaches. While such vulnerabilities are addressed through
frequent advisories and instructions to the system participants, it brings the
issue of cost to the forefront.
Cost and Connectivity
24.7 The cost of digital payments is sometimes a deterrence for users to

adopt digital payments as against cash which is perceived to be free by
such users. In addition, the cost of installation of acceptance infrastructure
like PoS dissuades certain small merchants to adopt them. Low cost digital
acceptance solutions like QR codes have helped in addressing this gap
to a certain extent (there are over 7 crore QR codes deployed across the
country), but there is scope for more innovative products and further

expansion of QR code deployment. Effecting payment through the QR
code still requires internet connectivity at the user's end and offline
payment solutions can help plug this gap. As per the TRAI data, as on
October 2020 there are 73.4 crore internet subscribers in India as against
117.1 crore telephone subscribers which implies that there is still scope
for expansion of internet coverage.
_______

Chapter 25
The Road-map
25.1 The factors inhibiting the digital push are connectivity issues, inadequate
acceptance infrastructure, lack of familiarity with newer, alternative payment
methods, delay in getting complaints resolved and security and privacy
concerns. RBI has acknowledged the same and to address these issues
has put in place systems like, consumer awareness programmes, ombudsman
schemes, etc.
Self-Regulatory Organisation (SRO)
25.2 RBI has been following the approach of placing discussion papers
in public domain and inviting feedback before bringing in structural
changes in the payment systems and also changes in regulation of
payment systems. There are a variety of ways in which industry participation
can be facilitated in the regulatory and supervisory process, and self-
regulation is one such process. Self-regulation would involve prescribing
standards, setting good governance practices and moderating deviant
behaviour through voluntary agreements, peer pressure, ear-to-the-ground
and other methods. Most of these activities can be institutionalised through
a SRO which can engage with the regulator / supervisor and also be
responsible for setting and enforcing rules for PSOs. SRO can collaborate
with various stakeholders and facilitate their participation in the self-
regulatory processes including helping to frame rules and monitoring
compliance. SRO is expected to address concerns beyond the narrow self-
interest of the industry, such as to protect customers, participants and other
stakeholders in the ecosystem. A framework for recognition of SROs, as
announced in the Monetary Policy Statement dated February 6, 2020, was
released in October 2020 and RBI is awaiting applications for authorisation
of SROs.
Offline Payments
25.3 There has been considerable growth in digital payments using mobile
phones, cards, etc. Lack of internet connectivity or low speed of internet,
especially in remote areas, is a major impediment for adoption of digital
payments. Against this backdrop, providing an option of off-line payments

through mobile devices and stored value component on cards is expected
to further adoption of digital payments. Entities are being encouraged to
develop offline payment solutions and a pilot scheme in this regard was
rolled out in August 2020. The pilot scheme is being undertaken till March
31, 2021 and based on experience gained, a decision will be taken on roll
out of the scheme.
Surveys for Digital Payments Awareness
25.4 As digital payments are a back-up and an important part of all

contingency plans at the time of an emergency or a natural disaster, it is
important to understand the factors inhibiting digital payments. A survey
will therefore be conducted to understand the digital penetration in the
country. This will help to orient policies and operations to ensure that digital
footprints reach the remotest area and strata of the country. The survey
will also support the efforts towards, (a) operationalising the PIDF, (b)
contributing to the one-district-in-a-state to be fully digital enabled initiative,
(c) understanding overall digital penetration by merchants, service providers,
users, etc.
Digital Payments Index (DPI)
25.5 In the Sixth Bi-monthly Monetary Policy Statement for 2019-20 dated
February 06, 2020, the Statement on Developmental and Regulatory
Policies announced that RBI would construct and periodically publish a
composite "Digital Payments Index" (DPI). The DPI is envisaged to
effectively capture the extent of digitisation of payments in the country and
would be based on multiple parameters to accurately portray the penetration
and deepening of various digital payment modes. The RBI-DPI has since
been constructed with March 2018 as the base period, i.e. DPI score for
March 2018 is set at 100. RBI-DPI was published on January 01, 2021
and the DPI score for March 2019 and March 2020 were 153.47 and
207.84, respectively.
Legal Entity Identifier (LEI)
25.6 LEI envisages identification of unique parties to financial transactions

across the globe and is designed as an important component for improvement
in financial data across the globe. Cross-border retail payments are

generally less transparent and more expensive than domestic transactions.
Given the nature of cross-border transactions, there is a case for exploring
the option of using LEI to identify the payment system participants, agents
and distributors, in respect of cross-border services, particularly for large
value payments, including expanding the implementation across all the
identified segments.
Central Bank Digital Currencies (CBDC)
25.7 CBDC is a legal tender and a central bank liability in digital form
denominated in a sovereign currency and appearing on the central bank's
balance sheet. It is in the form of electronic currency which can be converted
or exchanged at par with similarly denominated cash and traditional central
bank deposits. Innovations are changing the payments space rapidly. This
has made central banks around the world to examine whether they could
leverage on technology and issue fiat money in digital form.
25.8 Private digital currencies (PDCs) / virtual currencies (VCs) / crypto

currencies (CCs) have gained popularity in recent years. In India, the
regulators and governments have been sceptical about these currencies
and are apprehensive about the associated risks. Nevertheless, RBI is
exploring the possibility as to whether there is a need for a digital version
of fiat currency and in case there is, then how to operationalise it.
Geo-tagging
25.9 In order to measure the adoption of digital payments, it is essential

to have geographical location of the payment system touch points [bank
branches, ATMs, PoS terminals, BCs, etc.] across the country. The
Reserve Bank has already established a framework to capture the location
and business details of commercial bank branches, ATMs and BCs across
the country. It is envisaged to extend a similar framework to capture and
maintain information about PoS terminals and other payment system touch
points.
Increased Coordination
25.10 The Payment Systems Vision 2021 envisaged that in order to have
a co-ordinated approach towards regulation, the Reserve Bank shall

engage with the other sectoral regulators - SEBI, IRDA, TRAI, etc., to
remove frictions in regulation and ease system operator / customer
comfort. Accordingly, the Reserve Bank has set-up an inter-regulatory
committee on Digital Payments with officials from other financial sector
regulators and the inaugural meeting was held on July 31, 2020. The
committee is expected to work towards overcoming frictions in digital
payments arising out of connectivity issues, exchange inputs / references
between / amongst regulators, enhance awareness about digital payments,
facilitate digital financial inclusion, etc. The endeavour is also to have a
co-ordinated approach to regulation and supervision within Reserve Bank
across the different related departments - Department of Regulation,
Department of Supervision, Financial Markets Regulation Department,
Financial Markets Operations Department, Foreign Exchange Department,
Customer Education and Protection Department, Department of Information
Technology, Department of Economic and Policy Research, Department of
Statistics and Information Management, Department of Government and
Bank Accounts, etc. The intra-regulatory committee is expected to address
issues related to intra-regulatory coordination, problems in TReDS, etc.
The inaugural meeting of the intra-regulatory committee was held on
November 24, 2020.
_______

Chapter 26
Conclusion
26.1 The journey of PSS in the country started with the mission of
establishing safe, secure, sound and efficient PSS in the country. Over the
years, new challenges were encountered, and RBI has been dynamically
addressing them through its Payment Systems Vision with new strategies
and planned efforts to address these issues and ensure development of
the payment ecosystem in the country. The payment landscape has
evolved from the paper-based payment instruments and progressed to a
situation where a plethora of payment systems facilitate digital payments.
26.2 India has witnessed significant growth in payments over the past
decade with the introduction of numerous payment systems. The challenge
now is to sustain the growth in payments and ensure a shift in customer
behaviour from cash to digital payments. Efforts such as introduction of
AFA, limiting customer liability, digital ombudsman and switch-on / switch-
off cards for online and international use are few milestones in the domain
of customer protection. RBI has worked diligently towards creation of a
payment landscape where banks and non-banks coexist and thrive
together which augurs well for further growth and development of digital
payments in the country.
26.3 Fuel to the growth of retail payments has been provided by the central
bank operated payment system viz., NEFT and creation of an umbrella
entity (NPCI) by RBI. The approach has yielded results with many
innovative products like UPI, IMPS, AEPS, BBPS, Bharat QR among
others, ushering the country into the era of innovative and fast digital
payments space and nurturing growth of retail payments. With interoperability
as the cornerstone of the regulatory approach of RBI, it has been ensured
that there is option of usage of a payment system product across the
system participants. The advent of FinTech firms in the payments space
has provided further fillip to the expansion of the payment ecosystem. By
offering API based integration, these FinTech firms have leveraged the
utility of the existing platforms to offer a bouquet of innovative payment
solutions to widen the reach, enrich user experience and simultaneously
enhance retail payments.

26.4 Even though ample options already exist for digital payments in the
country, regulatory efforts will continue to encourage innovation to include
hitherto excluded geographies and societal cross-sections, promote healthy
competition among system participants, enhance customer literacy and
awareness in payment systems, ameliorate acceptance infrastructure
across the country and enhance cross-border payments through bilateral
and multilateral arrangements with other countries. All the above will be
implemented based on learnings from experiences, as well as knowledge
and insights gained from information sharing with other countries, and from
viewpoints of stakeholders through consultations and discussions.
26.5 Such is the development of digital payment in the country that it has
started expanding beyond boundaries. Implementation of successful Indian
practices in developed countries of Europe and United States is testimony
of India being perceived as the leader in payment systems now.
26.6 As new dimensions are added to the payment ecosystem, it is

accompanied by new challenges and opportunities to overcome these
challenges. RBI has meticulously met these challenges and utilised the
opportunities to smoothen the journey towards the vision of a less-cash
society by creating a framework of robust, convenient, accessible, low cost
and secure digital PSS in the country which is adapting and evolving with
time, customer and market landscape. As indicated in the opening
sentence, the journey of PSS in the country started with the mission of
establishing safe, secure, sound and efficient PSS in the country and the
journey continues with all the path breaking innovations and initiatives.
_______

Appendix 1
Chronology of Major Milestones
Date Announcements
05.02.2010 Enhancement of features of NEFT - increase in operating
hours, hourly settlements, positive confirmation to remitter
and tightening of return window.
22.02.2010 CTS-2010 standard - provision of mandatory minimum-
security features on cheque forms like quality of paper,
watermark, bank's logo in invisible ink, void pantograph,
etc., and standardisation of field placements on cheques.
24.09.2010 Authorised Payment System Providers to put in place a
Dispute Resolution Mechanism.
27.12.2010 Authorised entities to furnish their respective system audit
reports from a qualified Certified Information Systems
Auditor on an annual basis.
04.01.2011 Scope of Speed Clearing extended to cover all transaction
codes, other than those relating to government cheques.
22.03.2011 Banks to submit a quarterly review of ATM transactions
(failed and complaints).
29.03.2011 Put in place a system of online alerts for all types of card
transactions at various channels, irrespective of the amount.
04.05.2011 Limit of Mobile Banking transactions without insisting on
end-to-end encryption revised to ` 5000.
04.08.2011 Banks to put in place additional factor of authentication
for all Card Not Present transactions.
21.09.2011 Revised access criteria for centralised payment systems
and decentralised payment systems.
22.09.2011 Risk mitigation measures related to Card Present
transactions.
29.09.2011 Measures to enhance usage of Indo-Nepal Remittance
System.
27.12.2011 Cut-off date for implementing the CTS-2010 standard
across the country.
05.01.2012 Payment of Penal Interest for delayed credit / refunds of
NEFT transactions and efficient functioning of Customer
Facilitation Centres.

Date Announcements
09.04.2012 Expanded the sub-membership route to enable all licenced
banks to participate in NEFT and RTGS systems.
13.04.2012 Banks to allow the customers to choose NEFT also as
one of the electronic modes of making payment towards
loan EMIs / repayments, etc.
20.06.2012 Permitting non-banks to set-up and operate White Label
ATMs in India.
28.06.2012 Cap on Merchant Discount Rate for debit card transactions.
10.08.2012 CBS enabled banks to issue only "payable at par" / "multi-
city" CTS-2010 Standard cheques.
24.06.2013 Security and Risk Mitigation Measures for Card Present
and Electronic Payment Transactions.
11.10.2013 Launch of new Next Generation RTGS (NG-RTGS) System.
20.12.2013 Adoption of ISO 20022 messaging standard in NG-RTGS
System.
07.05.2015 Banks to issue only EMV chip and pin-based cards.
09.07.2015 Introduction of new category of PPI for Mass Transit
Systems.
27.08.2015 Enhanced limits for cash withdrawal at Point-of-Sale
Terminals at Tier-3 to Tier-6 Centres to ` 2000/-.
26.05.2016 Banks to put in place a Board approved policy on
merchant acquisition.
29.09.2016 Banks to ensure that all new card acceptance infrastructure
deployed with effect from January 1, 2017 are enabled for
processing payment transactions using Aadhaar-based
biometric authentication also.
08.05.2017 NEFT system - Settlement of batches at half-hourly
intervals.
06.04.2018 All system providers to ensure that the entire data relating
to payment systems operated by them are stored in a
system only in India.
15.10.2018 Capital requirements and governance framework of Central
Counterparties (CCPs) as also providing a framework for
recognition of foreign CCPs.

Date Announcements
16.10.2018 Road map on interoperability (i) of PPIs issued in the form
of wallets through UPI, (ii) between wallets and bank
accounts through UPI, and (iii) for PPIs issued in the form
of cards through card networks.
15.11.2018 Positive confirmation to the remitter of the funds regarding
completion of the fund transfer in RTGS system.
04.01.2019 Criteria for determining customers' liability with the objective
of strengthening customer protection in unauthorised
electronic payment transactions in PPIs issued by authorised
non-banks.
08.01.2019 Authorised card payment networks to offer card tokenisation
services to any token requestor through mobile phones
/ tablets.
08.01.2019 Committee on Deepening of Digital Payments constituted;
report submitted in May 2019.
28.05.2019 Customer transactions cut-off time in RTGS extended
from 4:30 pm to 6:00 pm, with effect from June 1, 2019.
04.06.2019 Report on Benchmarking India's Payment Systems against
20 other jurisdictions released.
11.06.2019 Waiver of (i) processing and time varying charges levied
by RBI on banks for outward transactions undertaken
using the RTGS system and (ii) the processing charges
levied by RBI for transactions processed in the NEFT
system with effect from July 1, 2019.
11.06.2019 Committee to Review the ATM Interchange Fee Structure
constituted; report submitted in December 2019.
21.08.2019 Processing of e-mandate on cards for recurring transactions
(merchant payments) with AFA during e-mandate
registration, modification and revocation, and the first
transaction.
16.09.2019 Scope and coverage of Bharat Bill Payment System
enhanced to include all categories of billers who raise
recurring bills (except prepaid recharges) as eligible
participants, on a voluntary basis.

Date Announcements
20.09.2019 Framework for TAT and customer compensation for failed
transactions using authorised payment systems.
30.09.2019 Payment and Settlement Systems Innovation Contest and
Payment and Settlement Systems Innovative Ideas
Competition announced.
04.11.2019 Regulatory Sandbox (RS) - Retail Payments as its First
Cohort.
16.12.2019 NEFT started operating 24x7.
16.12.2019 Member banks to waive charges for NEFT transactions
initiated online by savings bank account holders.
23.12.2019 Committee for Analysis of QR Code constituted; report
submitted in July 2020.
24.12.2019 New type of semi-closed PPI introduced with loading only
from a bank account and usage restricted to purchase of
goods and services.
30.12.2019 All authorised payment systems and instruments to link
with FASTags under the NETC system.
10.01.2020 Processing of e-mandate on UPI for recurring transactions
(merchant payments) with AFA during e-mandate registration,
modification and revocation, as also for the first transaction.
10.01.2020 Revised framework for imposing monetary penalty on
authorised payment system operators / banks.
15.01.2020 Guidelines on improved user convenience and increased
security of card transactions.
17.03.2020 Guidelines covering regulation of payment aggregators
and payment gateways covering authorisation, capital
requirements, governance, merchant on-boarding,
settlement and escrow account management, dispute
management framework, etc.
23.03.2020 Payments fraud reporting by bank and non-bank PPI
issuers commenced in CPFIR.
05.06.2020 PIDF created to encourage acquirers to deploy Points of
Sale infrastructure (both physical and digital modes) in
tier-3 to tier-6 centres and north eastern states.

Date Announcements
13.06.2020 Release of Oversight Framework for Financial Market
Infrastructures and Retail Payment Systems.
22.06.2020 Authorised PSOs and participants to undertake targeted
multi-lingual campaigns to educate their users on safe
and secure use of digital payments.
06.08.2020 PSOs to introduce Online Dispute Resolution (ODR)
systems in a phased manner. To begin with, authorised
PSOs to implement ODR systems for failed transactions
in their respective payment systems by January 01, 2021.
06.08.2020 A pilot scheme announced for authorised PSOs - banks
and non-banks - to provide offline payment solutions
using cards, wallets or mobile devices for remote or
proximity payments, for a limited period.
18.08.2020 Released framework for authorisation of pan-India Umbrella
Entity for Retail Payments.
25.09.2020 Mechanism of Positive Pay for all cheques of value
` 50,000 and above to be introduced from January 1,
2021.
22.10.2020 Framework for recognition of a Self-Regulatory Organisation
for PSOs.
22.10.2020 Streamlining QR codes to reinforce the acceptance
infrastructure, provide better user convenience, promote
interoperability and enhance system efficiency.
17.11.2020 Reserve Bank Innovation Hub set up to promote innovation
across the financial sector by leveraging on technology
and creating an environment which would facilitate and
foster innovation.
04.12.2020 RTGS round the clock on all days of the year with effect
from December 14, 2020.

Appendix 2
Payment System Data-2010, 2015 and 2020
Item Volume (Lakh) Value (` ‘000 Crore)
2010-11 2015-16 2019-20 2010-11 2015-16 2019-20
Payment Systems
1. Large Value Credit 493 983 1507 48487 82457 131156
Transfers – RTGS
Retail Segment
2. Credit & Debit 4064 31415 215619 1194 9140 29398
Transfers
2.1 NEFT 1323 12529 27445 939 8327 22946
2.2 IMPS 2208 25792 162 2338
2.3 UPI 125186 2132
2.4 NACH 14041 36979 380 1976
2.5 ECS 2741 2638 19 255 271 5
2.6 Others 198 1
3. Card Payments 5022 19593 73013 114 399 1535
3.1 Credit Cards 2652 7857 21773 75 241 731
3.2 Debit Cards 2371 11736 51240 39 158 804
4. Prepaid Payment 7480 53317 48 215
Instruments
5. Paper-based 13873 10964 10414 10134 8186 7824
Instruments
Total Retail 22959 69452 352363 11442 17775 38974
Payments (2+3+4+5)
Total Payments 23452 70435 353870 59930 100233 170130
(1+2+3+4+5)
Total Digital 9579 59472 343456 49795 92046 162305
Payments (1+2+3+4)

Appendix 3
Acronyms Used
Sl No Acronym Expansion
1 AePS Aadhaar-enabled Payment System
2 AFA Additional Factor of Authentication
3 APBS Aadhaar Payments Bridge System
4 ATM Automated Teller Machine
5 BBPCU Bharat Bill Payment Central Unit
6 BBPOU Bharat Bill Payment Operating Unit
7 BBPS Bharat Bill Payment System
8 BC Business Correspondent
9 BCP Business Continuity Plan
10 BHIM Bharat Interface for Money
11 BIS Bank for International Settlements
12 BPSS Board for Regulation and Supervision of Payment
and Settlement Systems
13 CAGR Compounded Annual Growth Rate
14 CBDC Central Bank Digital Currency
15 CBS Core Banking System
16 CC Crypto Currency
17 CCIL Clearing Corporation of India Limited
18 CCP Central Counter Party
19 CDE Critical Data Elements
20 CDDP Committee on Deepening of Digital Payments
21 CDSL Clearcorp Dealing Systems (India) Limited
22 CFC Customer Facilitation Centre
23 CNP Card Not Present
24 CP Card Present
25 CPMI Committee on Payments and Market Infrastructures
26 CPMI- Committee on Payments and Market Infrastructures
IOSCO - International Organisation of Securities
Commissions
27 CPPS Central Positive Pay System
28 CPS Centralised Payment System
29 CROMS Clearcorp Repo Order Matching System
30 CTS Cheque Truncation System

31 DFA Digital Financial Awareness
32 DFL Digital Financial Literacy
33 DoT Department of Telecommunications
34 DPI Digital Payments Index
35 DSB Designated Settlement Bank
36 DTH Direct-To-Home
37 e-BAAT Electronic-Banking Awareness and Training
38 ECCS Express Cheque Clearing System
39 ECS Electronic Clearing Service
40 EERC External Expert Review Committee
41 e-KYC Electronic-Know Your Customer
42 EMV Europay, Mastercard, Visa
43 FBIL Financial Benchmarks India Limited
44 FMI Financial Market Infrastructure
45 FRA Forward Rate Agreement
46 FSB Financial Stability Board
47 FY Financial Year
48 G2P Government to Person
49 GIFT Global Interchange for Financial Transactions
50 GLEIF Global LEI Foundation
51 GPRS General Packet Radio Service
52 HVC High Value Clearing
53 IAMAI Internet and Mobile Association of India
54 IBA Indian Banks' Association
55 IBBC Indian Banking Community Cloud
56 IDL Intra-day Liquidity
57 IDRBT Institute for Development and Research in Banking
Technology
58 IFSC Indian Financial System Code
59 IFTAS Indian Financial Technology and Allied Services
60 IGB International Governance Body
61 IMPS Immediate Payment Service
62 INFINET INdian FInancial NETwork
63 IoT Internet of Things

64 IRDA Insurance Regulatory and Development Authority
65 IRS Interest Rate Swap
66 IVR Interactive Voice Response
67 KYC Know Your Customer
68 LABs Local Area Banks
69 LEI Legal Entity Identifier
70 LEIL Legal Entity Identifier India Limited
71 LEI-ROC LEI-Regulatory Oversight Committee
72 LOU Local Operating Unit
73 LVPS Large Value Payment System
74 Magstripe Magnetic Stripe
75 MDR Merchant Discount Rate
76 MeitY Ministry of Electronics and Information Technology
77 MIBOR Mumbai Inter Bank Offer Rate
78 MICR Magnetic Ink Character Recognition
79 MIOIS Mumbai Inter Bank Overnight Indexed Swaps
80 MMBCS Magnetic Media Based Clearing System
81 MNSB Multi-lateral Net Settlement Batch
82 MoU Memorandum of Understanding
83 MPoS Mobile Point of Sale
84 MSME Micro, Small and Medium Enterprise
85 MTSS Money Transfer Service Scheme
86 NACH National Automated Clearing House
87 NCD Non-Convertible Debenture
88 NCMC National Common Mobility Card
89 NDS-OM Negotiated Dealing System-Order Matching
90 NECS National Electronic Clearing Service
91 NEFT National Electronic Funds Transfer
92 NETC National Electronic Toll Collection
93 NFC Near Field Communication
94 NFS National Financial Switch
95 NG-RTGS Next Generation-Real Time Gross Settlement
96 NPCI National Payments Corporation of India
97 NSBL Nepal SBI Bank Limited

98 ODR Online Dispute Resolution
99 OTC Over The Counter
100 P2M Person to Merchant
101 P2P Person to Person
102 PA Payment Aggregator
103 PAN Primary Account Number
104 PBs Payment Banks
105 PDC Private Digital Currency
106 PFMIs Principles for Financial Market Infrastructures
107 PG Payment Gateway
108 PIDF Payments Infrastructure Development Fund
109 PIN Personal Identification Number
110 PKI Public Key Infrastructure
111 PM Performance Metrics
112 PoA Point of Arrival
113 PoS Point of Sale
114 PPI Prepaid Payment Instrument
115 PRD Panel for Resolution of Disputes
116 PSO Payment System Operator
117 PSP Payment System Provider
118 PSS Payment and Settlement Systems
119 PSTN Public Switched Telephone Network
120 PSU Public Sector Undertaking
121 QCCP Quantified Central Counterparty
122 QR Quick Response
123 RBI Reserve Bank of India
124 RDA Rupee Drawing Arrangement
125 RECS Regional Electronic Clearing Service
126 RRBs Regional Rural Banks
127 RS Regulatory Sandbox
128 RTGS Real Time Gross Settlement
129 SAR System Audit Report
130 SEBI Securities and Exchange Board of India
131 SFMS Structured Financial Messaging System

132 SGL Subsidiary General Ledger
133 SIPS Systemically Important Payment System
134 SMS Short Message Service
135 SOF SWIFT Oversight Forum
136 SPC SAARC Payments Council
137 SRO Self Regulatory Organisation
138 SSS Securities Settlement System
139 STP Straight Through Processing
140 SURU Semi-Urban and Rural
141 SWIFT Society for Worldwide Interbank Financial
Telecommunication
142 TAT Turn-Around Time
143 TPA Third Party Applications
144 TPAP Third Party Application Provider
145 TR Trade Repository
146 TRAI Telecom Regulatory Authority of India
147 TReDS Trade Receivables Discounting System
148 TREPS Tri Party Repo Dealing System
149 TSP Technology Service Provider
150 UIDAI Unique Identification Authority of India
151 UPI Unified Payments Interface
152 UPId Unique Product Identifer
153 USSD Unstructured Supplementary Services Data
154 UTI Unique Transaction Identifier
155 VC Virtual Currency
156 WLA White Label ATM
157 WLAO White Label ATM Operator

Appendix 4
References
1) Benchmarking India's Payment Systems - RBI
2) Assessment of the Progress of Digitisation from Cash to Electronic -

RBI
3) CPMI Red Book

NOTES
NOTES
.
RESERVE BANK OF INDIA
DEPARTMENT OF PAYMENT AND SETTLEMENT SYSTEMS
CENTRAL OFFICE
MUMBAI

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Payment and

Settlement Systems in India

Over the course of this journey, significant upgradation was achieved by

I congratulate the efforts of the Department of Payment and Settlement

The present state-of-the-art payment systems that are affordable, accessible,

From barter system to Unified Payments Interface (UPI), payment

This Booklet takes us through the amazing journey of payment systems

I take this opportunity to convey my kudos to the thought leaders in

1.2 An efficient payment system promotes market efficiency and reduces

1.3 In India, the oversight of the payment systems is entrusted to the

Payment and Settlement Systems Act, 2007

1.4 A sound and appropriate legal framework is a necessary requirement

Payment and Settlement Systems in India | 1

Components of Payment and Settlement Systems

1.6 The Bank for International Settlements' (BIS) Committee on Payments

2 | Payment and Settlement Systems in India

1.9 The shift in payment preference in the last 10 years is evidenced by

Payment and Settlement Systems in India | 3

1.10 The advent of innovative electronic payment systems that leverage

Table 2: Share of payment systems

4 | Payment and Settlement Systems in India

1.11 The last decade, therefore, has seen an explosion of payment

1.12 A study on payment systems is incomplete without touching some

Payment and Settlement Systems in India | 5

6 | Payment and Settlement Systems in India

Institute for Development and Research in Banking Technology

2.2 In its initial years, IDRBT primarily focused on developing and

2.3 IDRBT has recently undertaken focused initiatives on major areas of

Payment and Settlement Systems in India | 7

Indian Financial Technology and Allied Services (IFTAS)

2.4 RBI had constituted an External Expert Review Committee (EERC),

(i) INFINET, the communication backbone of the Indian banking and

(ii) SFMS, a robust messaging platform used in the RBI operated

8 | Payment and Settlement Systems in India

(iv) Global Interchange for Financial Transactions (GIFT), a one-stop

Clearing Corporation of India Limited (CCIL)

2.7 CCIL is a Financial Market Infrastructure (FMI), authorised by RBI

Payment and Settlement Systems in India | 9

2.11 The operations of CCIL are covered in detail in Chapter 14.

10 | Payment and Settlement Systems in India

Institution Building - Umbrella Organisation

Payment and Settlement Systems in India | 11

Table 3: Progress made by NPCI in the retail digital payments space

Note - *CTS operations were handed over to NPCI in 2013

3.6 Widespread adoption of NPCI's retail payment products has made

12 | Payment and Settlement Systems in India

Payment and Settlement Systems in India | 13

Magnetic Ink Character Recognition (MICR)

4.3 Following implementation of Core Banking Systems (CBS) in banks,

Cheque Truncation System (CTS)

14 | Payment and Settlement Systems in India

Payment and Settlement Systems in India | 15

4.8 To further augment customer safety in cheque payments and reduce

16 | Payment and Settlement Systems in India

Source: RBI Data

Payment and Settlement Systems in India | 17

Digital Payments Enablers

Mobile Phones and Internet