The fifth meeting of the Cyber Patriot Task Force, focused on Payments and Settlements was held on the 29th June 2019 at the Constitution Club of India, New Delhi. CISOs from government, FinTech, banks, payment companies and etc participated.
Following is the list of attendees:
- Mr A G Ramakrishna, Country Business Head - InstaReM India
- Mr Alok Arora, Co-founder and CEO, Nupay Business Solutions
- Mr Amit More, Founder & CEO, Bridge Fintech Solutions Pvt Ltd (Finzy)
- Mr Anand Kumar Bajaj, Founder & Chief Executive Officer, PayNearby
- Mr Ankur Singla, Head of Business Development - Consumer, Capital Float
- Mr Arpit Ratan, Co-Founder & Head - Business Development, Signzy
- Dr Aruna Sharma, Distinguished Fellow, SKOCH Development Foundation & Former Secretary, Government of India
- Cmde J Harsha Vardhan, Senior Advisor, Deloitte
- Dr K G Karmakar, Distinguished Fellow, Skoch Development Foundation & Former MD, NABARD
- Mr Krishnan Parameswaran, Co-Founder & CTO, Namaste Credit
- Mr Lucas Bianchi, CEO & Co-Founder, Namaste Credit
- Mr M V Murali Krishna, Head - Financial Inclusion & CSR, Bank of Baroda
- Mr Nikhil Mantha, Co-Founder, Piggy
- Mr Pradeep Khurana, EVP & CIO, SBI Cards & Payments Services Pvt Ltd
- Mr P S Rajan, General Manager - MSME, Union Bank of India
- Mr Ram Rakkappan, Senior Director & Head, Government Engagement – India & South Asia, Visa Inc
- Mr Sidharth Handa, Co-Founder & CEO, SIC ROBO
- Mr Suresh Sethi, CEO, India Post Payments Bank
- Mr Sunil Kulkarni, Joint Managing Director, Oxigen Services (India) Pvt Ltd
Some key areas of concern for the industry are frequent policy changes and shifting of goal posts across the regulatory spectrum. While KYC remains a major area of bread and butter concern, major shifts have been proposed in Payments (eg: Nilekani Report, P2P Lending, Loan Co-origination, etc). Some of these changes directly impact the business case and affect the technology choices already made. The refrain from the industry is for a stable and equitable policy environment.
Session 1: Deepening Digital Payments
- It is RBI’s mandate to deepen digital payments and it should intervene to look into issuer and acquirer concerns. But is should be brand, product and technology agnostic, those choices should be left to the market forces.
- There is need for a complete interoperability among the different payment systems. Universal PoS, Micro-ATM solutions, QR code and all transaction points should be interoperable. There is also need to move towards Blockchain as a technology for payments.
- Products like NCMC are low-ticket habit-forming digital solutions. Movement to digital will be slow, therefore, government has to ensure that no extinguishing cash immediately. Before going cashless, we have to be cash sufficient. This is about safety net that needs to be ensured.
- Right now people are withdrawing DBT and NREGA wages in one shot. This necessitates improvements in accessibility. This is where withdrawals at the doorstep through either PoS or Micro-ATM will help. Digital acceptance eco-system needs to be put in place, this will help reduce cash in circulation.
- A level playing field needs to be ensured. Biggest risk involved here is policy stability as there is too much of flip-flop. It is recommended that Micro-ATM interchange of 1 percent (max Rs 15) to be re-instated immediately. AEPS transactions of up to Rs 3,000 should be exempted from GST and technical architecture of Micro-ATM be reviewed to extend its use beyond just dispensing cash. Cash out on PoS should also be explored. This will help deepen the digital payments in rural areas.
- One BC should be allowed to represent multiple banks. This way viability of BC channel will be far higher. While commercials can be left to the bank, product innovation should have BC involvement.
- Domestic remittances attract 27 per cent GST. It is the migrant labour, which feels the pinch the most. It should be removed. Similarly, IMPS transactions of up to Rs 5,000 be exempted from GST at BC channel.
- For DBT, BC agents have to be compensated better, they are not getting even .5 per cent of DBT transactions. They should get at least 1 per cent to improve viability.
- Government is talking of unbundling of MDR. Instead of dictating MDR, the government should now dictate interchange. A lot of payment companies vanished between 2016-18 because of uncertain policy environment wherein investors were not comfortable investing in India. Regulator should play the role of creating level playing field. Government interferes into the business on how to do the business rather than managing risks in the business.
- Digital literacy and financial literacy are a must for financial deepening. A single BC or bank can’t do it, it has to be a concerted effort which should also include cyber security in its discipline.
Session 2: Payment Banks
- Either payment banks be given full service bank license or they have to be linked up with full service bank for survival. A payment bank itself needs financial inclusion otherwise there is no business model for them.
- Suggestions for viability include: Rupay Debit card for payment banks; allow payment banks to give micro-credit; become a corporate BC of a large bank on commission basis; allow to do mobilization, credit, lead generation, wealth management, cross selling of various products like insurance and mutual funds; DBT payments should be routed through them; infusion of technology like AI, Blockchains etc to make them completely interoperable with the entire financial system; and for IPPB, all government transactions should happen through this.
- On co-origination of loans for MSMEs, even though FinTechs are readying themselves to provide leads to the banks; banks need to improve on their ability to process the digital data followed by due diligence and disburse loans at a faster speed. This will lower the costs.
Session 3: Fintech and Regulation
- RBI’s P2P lending rules cap exposure to any lender participant at Rs 10 lakhs. This has led to NBFC-P2P witnessing very little interest from large retail investors, particularly HNIs and ultra HNIs. Same applies to financial institutions who find Rs 10 lakh limit to be too tiny. This limit should be increased.
- P2P investments into mutual funds and SIPs should also be allowed. This will boost retail and micro-investments manifold to spur financial deepening.
- Too many diverse systems and restrictions right now for data access, bureau, KYC etc. There is need to create a framework for user-controlled consent-based access to all their data, e.g., open API access to GST data on user consent.
- Tax regime for SMEs is too complex. Tax code and process for compliance should be simplified. GST should be paid based on funds received and not invoices.
- Dealing with multiple regulators becomes an issue. KYC is a nagging problem for business and often very cumbersome for the customers. The government should accelerate the process to implement Central KYC or CKYC. All the FinTech firms should be given the access to CKYC. This will save a lot of efforts and resources.
- Even regulators need to have more technology deployment with active structured conversations between themselves and the industry. A FinTech Self-Regulatory Body should be created to enable this. This will allow FinTech’s to have a say in policy.