Digital Payments

218 Pages·2016·4.12 MB·English

Committee on Digital Payments
Medium Term Recommendations
to
Strengthen Digital Payments Ecosystem
Report
December 2016
Constituted by
MINISTRY OF FINANCE, GOVERNMENT OF INDIA
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Committee to review the framework related to Digital
Payments
New Delhi
09 December 2016
Shri Arun Jaitley
Finance Minister
Government of India
New Delhi 110001
Dear Finance Minister,
The Committee to review the framework related to Digital Payments presents
its Report to the Government of India. The recommendations aim to strengthen
the ecosystem to promote digital payments with a focus on reaching financially
and socially excluded groups.
Yours sincerely
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Contents
1. Acknowledgement 11
Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2. Executive Summary 19
3. Why Digital? 27
3.1. High Cost of Cash . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.2. Emergence of Technology Led Payments Solutions . . . . . . . 31
3.3. Fostering Economic Growth, Social Inclusion and International
e-Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.4. Recent Reforms and Policy Recommendations . . . . . . . . . . 33
4. Role of State 35
4.0.1. Market failure . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.0.1.1. Market failures and payments systems . . . . . 36
4.0.2. State intervention to address market failure . . . . . . . . . 38
5. Vision 41
6. Policy Analysis 43
6.1. Competition and Innovation . . . . . . . . . . . . . . . . . . . . 43
6.1.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.1.1.1. Overview of the Payments Ecosystem . . . . . 44
6.1.2. Domestic scenario . . . . . . . . . . . . . . . . . . . . . . . 45
6.1.2.1. Payments Ecosystem in India . . . . . . . . . . 45
6.1.2.2. Policy Backdrop . . . . . . . . . . . . . . . . . 46
6.1.2.3. Changing Nature of the Payments Industry . . 49
6.1.2.4. Legal Framework . . . . . . . . . . . . . . . . . 52
6.1.3. Global best practices and emerging direction . . . . . . . . 54
6.1.4. Options before the Committee . . . . . . . . . . . . . . . . 62
6.1.4.1. Analysis of Key Issues . . . . . . . . . . . . . . 62
6.1.4.2. Options for Consideration . . . . . . . . . . . . 82
6.2. Safety and Resilience . . . . . . . . . . . . . . . . . . . . . . . . 88
6.2.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 88
6.2.1.1. Oversight of payment and settlement systems . 88
6.2.1.2. Consumer protection for users . . . . . . . . . 89
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6.2.2. Domestic scenario . . . . . . . . . . . . . . . . . . . . . . . 90
6.2.2.1. Oversight of Payment and settlement systems 91
6.2.2.2. Consumer Protection for users . . . . . . . . . 93
6.2.3. Global best practices and emerging direction . . . . . . . . 96
6.2.3.1. Oversight of payment and settlement systems . 96
6.2.3.2. Consumer Protection for users . . . . . . . . . 102
6.2.4. Options before the Committee . . . . . . . . . . . . . . . . 105
6.2.4.1. Oversight of the payment and settlement systems106
6.2.4.2. Consumer protection for users . . . . . . . . . 109
6.3. Access, Adoption and Usage . . . . . . . . . . . . . . . . . . . . 111
6.3.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 111
6.3.2. Domestic scenario . . . . . . . . . . . . . . . . . . . . . . . 112
6.3.2.1. The current status of payments in India . . . . 112
6.3.2.2. Issues in the existing framework . . . . . . . . 115
6.3.3. Global best practices and emerging direction . . . . . . . . 118
6.3.4. Options before the Committee . . . . . . . . . . . . . . . . 122
7. Recommendations 153
7.1. Measures involving changes to primary legislation . . . . . . . . 153
7.2. Measures involving regulatory changes or executive decisions . 158
7.3. Drafting instructions: Payments and Settlement Systems Act . 170
7.4. Timelines for Implementation of Recommendations . . . . . . . 176
Annexures 179
A. Government order establishing the Committee 179
Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
List of Tables
4.1. Ranking of models . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.1. Major Payment Systems - Operations and Membership. . . . . 46
6.2. National Payments Corporation of India (NPCI) Shareholding
Pattern as on 22 January 2016 . . . . . . . . . . . . . . . . . . 70
6.3. Growth in Card Issuance* . . . . . . . . . . . . . . . . . . . . . 113
6.4. Debit Card Usage* . . . . . . . . . . . . . . . . . . . . . . . . . 113
6.5. Credit card usage* . . . . . . . . . . . . . . . . . . . . . . . . . 114
6.6. No. of Cards, ATMs and PoS terminals per million of population*114
6.7. ATMs/PoS terminals per million population* . . . . . . . . . . 115
6.8. Growth in Card Acceptance Infrastructure* . . . . . . . . . . . 115
6.9. Traditional and Non-Traditional Data . . . . . . . . . . . . . . 143
6.10.Breakup of acquirer gross margins* . . . . . . . . . . . . . . . . 145
6.11.Illustration for service tax payable on the card transaction . . . 150
7.1. Implementation Roadmap . . . . . . . . . . . . . . . . . . . . . 176
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List of Figures
3.1. Hierarchy of Demand of Financial Products (Source: Payments
Council of India) . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.1. Payments Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . 44
6.2. Payments Regulation in Australia. . . . . . . . . . . . . . . . . 55
6.3. Options for Institutional Arrangement . . . . . . . . . . . . . . 85
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