Commit to the PIDF

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November 05, 2021 3:30 AM

Banks must step up to fund payments infra

That may have been the reason why RBI made it mandatory for card-issuing banks to contribute to the corpus, at the rate of Rs 1 per debit card and Rs 3 per credit card issued by them. A formula for recurring annual contributions was also laid down.That may have been the reason why RBI made it mandatory for card-issuing banks to contribute to the corpus, at the rate of Rs 1 per debit card and Rs 3 per credit card issued by them. A formula for recurring annual contributions was also laid down.

RBI’s decision to carry out geo-tagging of digital payments touch-points has brought the Payments Infrastructure Development Fund (PIDF) back into focus. The fund, created in June 2020, is targeted at subsidising the deployment of payment acceptance infrastructure in tier-3 to tier-6 centres over three years, starting January 1, 2021. The central bank had taken the lead and put in seed capital worth Rs 250 crore at the time of its creation. A contribution that at least matched that of RBI was expected from card-issuing banks and card networks. On January 5, RBI issued a fresh circular on operationalisation of the fund, where it said that the major card networks had contributed another Rs 95 crore to the fund. There had been no contribution from banks up until that point. That may have been the reason why RBI made it mandatory for card-issuing banks to contribute to the corpus, at the rate of Rs 1 per debit card and Rs 3 per credit card issued by them. A formula for recurring annual contributions was also laid down.

We do not yet know how much the corpus has expanded since the beginning of this year and to what extent banks have contributed to it. But the fact that RBI needed to issue guidelines on how much and when banks should put in money suggests that the latter have been less than enthusiastic about doing their bit. Now that contributions are mandatory, banks need to follow the rules. Ideally, they should endeavour to do a bit more and contribute more than the amounts stipulated by the central bank. This is especially important now when three of the major card networks operating in India are barred from issuing new cards and are unlikely to contribute much to the PIDF.

There can be no doubt that banks have benefited immensely from the spread of point of sale (PoS) terminals and quick-response (QR) codes across the country, many of which have been deployed at the initiative of non-bank fintech companies. As essential cogs in the money-transfer system, banks have, by default, been embedded into the tiniest of storefronts, all at the cost of venture capital. With Indians becoming increasingly comfortable making digital payments over the years, banks have seen the pressure on their branch-staff reduce to a significant degree. Carrying cash entails an operational cost for banks, and that, too, has seen a meaningful drop with the decline in cash-based payments. Banks, it is quite clear, have reaped the fruits of efforts made by the regulator over the last decade. It is only fair that they step up now and bear some of the cost of taking digital payments to the last mile.

With geo-tagging of merchant touch-points, RBI is aiming to address asymmetries in the geographical spread of digital payments. If the exercise is carried through well, it might also increase the level of transparency and accountability in the payments network. Dispute resolution for transactions gone wrong might become smoother. Both fintechs and banks will have to become more accountable for the merchants they acquire and the transactions they execute. Since geo-tagging is the first project for which RBI has explicitly invoked the PIDF, banks must rise to the occasion and prove their commitment to the fund.

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