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Recommendations of the Ratan Watal Committee on Digital Payment
Jan 02, 2017

The Committee on Digital Payments constituted by the Ministry of Finance, Department of Economic Affairs under the Chairmanship of Ratan P. Watal, Principal Advisor, NITI Aayog and former Finance Secretary to the Government of India recently submitted its Final Report. The Committee had earlier submitted an Interim Report to Ministry of Finance on 21st November 2016. 

Key Highlights

  • In its report the Committee has  recommended that a medium term strategy for accelerating growth of Digital Payments in India with a regulatory regime which is conducive to bridging the Digital divide by promoting competition, open access & interoperability in payments. 
  • The Report recommends inclusion of financially and socially excluded groups and assimilation of emerging technologies in the market, while safeguarding security of Digital Transactions and providing level playing to all stakeholders and new players who will enter this new transaction space.  
  • It has suggested inter-operability of the payments system between banks and non-banks, upgradation of the digital payment infrastructure and institutions and a framework to reward innovations and for leading efforts in enabling digital payments.
  • The Committee has calibrated its recommendations accordingly and has provided a suitable framework for smooth and speedy transition towards a Digital Payments Economy.
  • Towards finalization of the Report, the Committee engaged extensively with all stakeholders and technology groups including Reserve Bank of India, State Governments, Comptroller Auditor General of India, Payment companies, Technology Companies and the Academia. 

Terms of Reference for the Committee

  • To study and recommend need for charges, if any, in the regulatory mechanism and any legislation, relevant for the purpose of promotion of payments by digital modes 
  • To study and recommend ways for leveraging Unique Identification Number or any other proof of identity for authentication of card/digital transactions and setting up of a Centralised KYC Registry 
  • To study introduction of single window system of Payment Gateway to accept all types of Cards/Digital Payments of Government receipts
  • To study feasibility and framing rules for creating a payments history of all Digital Payments and create necessary linkage between payments transaction history and credit information; 
  • To study and recommend various measures to incentivize transactions through cards and digital means.
  • To study global best practices in payments including initiatives taken by various Governments/Government Agencies 
  • To identify market failure (s), if any, along with suitable interventions that may be implemented to promote payment by card/digital means 
  • To identify regulatory bottlenecks, if any, and suggest changes to promote payment by card/digital means 
  • To study and make recommendations on any other matter related to promotion of payments through Cards and Digital Means 

Other Key Recommendations

  • The Payment and Settlement Systems Act, 2007 should be replaced by an updated law. 
  • The amendment bill to legislate the Act will be finalized and presented before the cabinet in the next 30 days.
  • The Committee headed by former finance secretary Ratan Watal also recommends a number of regulatory changes along with those to the primary legislation.
  • It has suggested two options for regulating digital payment—either create an independent payments regulator within the framework of the Reserve Bank of India (RBI) or make the RBI’s Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) more independent. 
  • The committee had recommended giving independent status to BPSS, to be called the Payments Regulatory Board (PRB), the structure of which will be finalized in the next 30 days. 
  • The Committee has also suggested interoperability between banks and non-bank digital payment gateways/entities as well as within non-banks. 
  • National Payments Corp. of India (NPCI) has been asked to enable this on its platform over the next 60 days.
  • The other major suggestions have been withdrawal of all charges on digital-based transactions by the government, with special emphasis on low-value transactions (that are mainly financed by cash). 
  • One option is for telecom companies being permitted to roll out a Direct Carrier Billing (DCB) payment model for these transactions. 
  • DCB is a mobile payment option that lets users download and purchase digital content like games, movies, music, eBooks, apps, etc. from the Google Play Store and charge it to the users’ prepaid balance or add it to their postpaid bill.
  • RBI has also been asked to upgrade the existing real-time gross settlement system (RTGS) and National Electronic Funds Transfer (NEFT) systems so that they operate on a 24/7 basis.
  • The committee has called for mandating government departments and agencies to provide options to consumers to pay digitally as well as incentivize consumers to make payments (including payment of fines and penalties) to the government electronically by giving a discount or cashback. 
  • The Committee also recommended rewards for government departments, state governments, districts and Panchayats for enabling digital payments. 
  • The use of Aadhaar eKYC (know-your-customer) and Aadhaar-enabled Payments System (AEPS) has been encouraged by the committee.
  • The Committee recognises the fact that India has one of the lowest number of point-of-sale (POS) terminal per million people in the world.
  • In order to address the problem, a reduction in import duty has been suggested to make POS terminals affordable for the acquiring banks.

The committee also noted the transition to digital payments cannot be agnostic to the actual costs incurred by the end customers, the reasons for preferring cash, and the factors inhibiting the uptake of existent channels of digital payments.

The Committee said, “India’s dependency on cash imposes an estimated cost of approximately Rs 21,000 crore on account of various aspects of currency operations including cost of printing new currency, costs of currency chest, costs of maintaining supply to ATM networks, and interests accrued. This estimate does not reflect other external costs imposed by the use of cash, including the costs imposed by counterfeit currency and black money.”

Background

Earlier, the Ministry of Finance, Department of Economic Affairs had constituted a Committee on Digital Payments to review the payment systems in the country and to recommend appropriate measures for encouraging Digital Payments. The Committee was constituted on August 3, 2016 under the Chairmanship of Ratan P. Watal,  Principal Advisor, NITI Aayog and former Finance Secretary to the Government of India. The 11-member panel has representatives from the RBI, Unique Identification Authority of India (UIDAI), the tax department and various industry bodies in the payments space.


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