As part of its efforts to make the payment and settlement system safe and secure, the Reserve Bank of India has put out a vision document aimed at promoting a society less dependent on paper money and more attuned to electronic payments accessed anywhere and at any time by all at affordable prices.
Currently, cash remains the predominant payment mode in the country. The value of banknotes and coins in circulation at 12.04% of gross domestic product is much higher when compared with other emerging countries like Brazil, Mexico and Russia. An analysis by the central bank has found that while the growth of electronic payments including Real Time Gross Settlement (RTGS) transactions have been impressive, the benefits of modern electronic payment products and services have been concentrated to a large extent in tier-I and tier-II locations and to those citizens who already have access to formal banking channels.
The central bank has said that cheque clearing across the country would be centralised into three to four grids from the existing 1,100 clearing houses, with the clearing houses linked to the cheque truncation system grids. In smaller centres, the clearing house or one of the banks could transform itself into a service bureau offering scanning and transmission facilities to member banks on a pay-per-use basis.
The central bank has also laid out guidelines for harmonisation routing codes as currently different systems are used. For example, the magnetic ink character recognition (MICR) is used for cheque clearing and electronic clearing services operations. The Indian Financial System Code (IFSC) code is used for National Electronic Funds Transfer System (NEFT) and RTGS and the Basic Statistical Return code is used for identification of a bank branch. Analysts say a uniform code for all transactions will ease the inconvenience bank account holders face for their electronic transactions. They also say that the extensive use of technology will enable cost reduction, increase convenience, improve services and reduce risk.
The central bank has also suggested standardisation of account numbers. Currently, the account numbers maintained across various banks are different based on their requirements and range from 10 digits to 17 digits. With a lack of uniformity in account numbers, banks have to either mask excess digits or add extra digits for the transactions.
Payments made towards insurance premia, utility payments, taxes and even school fees can be done using the electronic system where funds can be transferred from one account to the other. Since Indian households on average pay 50-55 bills a year, such a system could save time and resources and the transactions can take place in real time. The central bank has also said it will develop a roadmap in consultation with the Indian Banks' Association for electronic invoicing and electronic letters of credit for electronic trade finance.
India has one of the lowest numbers of ATM and point of sale (PoS) terminals per million people. The penetration of ATMs is 63 per million people and that of PoS terminals at 497 per million people. As the need is more acute in the under-banked and unbanked segments, the central bank has suggested rapid expansion of ATMs, PoS terminals, micro-ATMs and hand-held devices.
To make electronic transaction safe and secure, adoption of authentication protocols, security features for safety and security of payment products and channels would be provided by the banks. Any security-related issues resulting in fraud will undermine public confidence in the use of electronic payment products, the central bank says in its vision document.
The RBI has underlined that the pricing of transactions should be based on determining factors such as urgency of the transaction, mode of settlement (real time or deferred), mode of initiation of transaction by the customer (electronic or paper), nature of transactions like financial market, corporate, person-to-person, e-commerce and risk premium. The central bank has also stressed the fact there is a need for simplifying the pricing structure by removing the complexities and provide a transparent and uncluttered pricing structure to the end user.