Decoding the RBI’s Payments Vision 2025

1. Financial institutions (FIs) would need to ensure that they have the necessary infrastructure and details to support an AFA for international transactions. Alternatives in addition to using OTP as an authentication factor would have to be explored.
2. Issuers would be required to inform their customers in advance in case of the introduction of an AFA.

The feasibility of settling foreign currencies on Indian payment systems using bilateral and multilateral arrangements of the foreign countries will be studied.

In addition, the RBI shall also evaluate the possibility of central banks of other countries opening their INR accounts with the RBI and making payments through the Centralised Payment System (CPS). Similarly, the possibility of the RBI opening accounts with other central banks shall be explored.

1. The RBI may evaluate models similar to those used by China and Hong Kong for the settlement of foreign currencies within these countries.
2. The financial messages used within India may need to be revamped to include additional currencies.
3. FIs would have to refine the payments messaging routing if foreign currency transactions and settlements can be made within India.

1. The RBI will have to evaluate CBDC use cases for domestic as well as cross-border transactions.
2. The RBI can focus on linking CBDC of multiple countries as one of the focal points during India’s G20 presidency.
3. FIs need to understand the use cases, explore their technical feasibility, and assess infrastructure availability to facilitate CBDC transactions. 

1. FIs, especially card network operators, will have to explore processing of transactions within India by setting up a processing switch to ensure the transaction data doesn’t leave the country and the investment required for the same.
2. The charges levied by operators may need to be revisited considering that the transaction processing cost and investment cost could change. 

1. All acquirers and issuers will have to be aligned and route their transactions through the National Card Switch and not through their respective switch.
2. FIs will need to have the necessary technology and make investments to process transactions through the National Card Switch.
3. Due to increased competition, card scheme operators may have to revisit their switching pricing to customers.

The RBI shall take necessary steps to migrate the existing RBI-operated payment system messages that currently do not use the ISO 20022 standard such as NEFT to the ISO 20022 standard.

However, the vision document does not speak about NPCI-operated payment systems such as UPI and RuPay

1. Banks may have to evaluate the use of message translators in case they do not wish to change their existing systems.
2. The NPCI may have to evaluate moving to ISO 20022 for the UPI rail.
3. If the ISO 20022 standard is made applicable for RuPay cards, banks will also have to plan for migration from ISO 8583 to ISO 20022 for RuPay transactions. In such a case, banks may have to continue using different messaging standards for players and for RuPay. 

1. The creation of a parallel system to process merchant transactions may adversely impact payment gateways (PGs) and payment aggregators (PAs).
2. PG and PAs should evaluate methods to enable faster credit to merchants at a lower cost to stay competitive.

Currently, an FI uses multiple payment identifiers to enable credit to a beneficiary. The RBI is evaluating the use of bank account numbers without using bank IFSC to enable faster and simpler fund transfers.

At the same time, the RBI has encouraged the use of the Legal Entity Identifier (LEI) in payment systems and areas of sanction screening, know your customer (KYC), corporate invoice reconciliation, fraud detection, etc.

1. Introduction of a common identifier such as the LEI may result in an additional cost for banks to issue new identifiers to customers.
2. FIs would be required to have necessary systems in place to capture the LEI information.
3. The scheme operator may have to make changes to the messaging format to enable the use of an alternative identifier like the LEI instead of IFSC. 

1. Central and state governments will need to integrate their payment platforms with the RBI’s eKuber.
2. FIs will also need to ensure integration with eKuber to enable transfer of funds to beneficiaries.

1. FIs, with the help of FinTechs, can explore the possibility of using National Common Mobility Card (NCMC) across different transit operators as well as for retail payments.
2. FIs will need to ensure interoperability at the acquiring end. Card schemes need to ensure that interoperability for offline transactions is seamless with respect to blacklist management, reconciliation, settlement and other operations processes.

1. There will be additional oversight by the PAC for governance and strategic decisions related to payment systems.

The RBI plans to review and develop a framework for all types of PPIs.

This includes closed system PPIs that are not currently regulated or supervised by the RBI.

1. With the review of PPIs guidelines, the currently unregulated closed system PPIs may be brought within the regulatory and supervisory ambit of the RBI with relaxed guidelines compared to semi-closed PPIs.
2. All PPI issuers may be required to implement a formal customer grievance redressal framework to handle customer complaints or grievances and define turnaround times for complaint resolution.

1. BNPL service providers may be regulated and licensing requirements may be introduced under the digital lending guidelines.
2. Requirements around KYC, fraud management and governance framework may be mandated for service providers.

1. Issuing banks may evaluate setting up acquiring infrastructure at the specified locations to avail subsidies.
2. Acquiring banks should adopt a scientific process for identification of deployment areas as payouts are based on the achievement of targets. 

1. India shall continue its active participation in G20 similar to the role that it is playing in various international standardsetting bodies.
2. It is expected that India shall focus on aspects related to digital transformation, countering money laundering and financing of terrorism, reducing remittance costs, multi-country CBDC, etc.

1. The RBI may place caps on charges levied by FIs on merchants/customers to ensure that the charges are reasonable and that they do not avert the use of digital payment systems.
2. FIs may have to revisit their pricing strategy and reduce the pricing for a few products and in some cases, increase the pricing for products that are currently not being priced.

1. Payment intermediaries including offline PAs may need to comply with licensing and capital requirements.
2. They will have to comply with the regulatory guidelines/mandates put forth by the RBI.

1. The RBI may introduce a policy framework focusing on various elements such as domestic incorporation, data use and reporting which BigTechs and FinTechs would be expected to follow. Licensing may be introduced for these entities in case they provide financial services.

1. The RBI may come up with alternative risk-based authentication mechanisms and mandate that banks use these alternative mechanisms.
2. FIs can evaluate whether they have the infrastructure to facilitate AFA using behavioural biometrics, location/historical payments, digital tokens or in-app notifications and make suitable investments, if necessary.
3. Introduction of alternative mechanisms may provide an opportunity for technology players to offer innovative payment solutions that ensure security as well as a seamless transaction experience to customers.

As a part of the RBI’s Master Direction on Digital Payment Security Controls,² regulated entities were expected to set up a robust governance structure, implement standards of security controls and provide a mechanism to customers for immediate notification of fraudulent transactions to the issuer entity.

Since building the above feature in the Central Payments Fraud Information Registry (CPFIR) is expected to take some time, the RBI has suggested examining and leveraging the ODR system in the interim period. 

1. Regulated entities should evaluate utilising the ODR system which is used for resolving customer disputes and grievances, and for monitoring and reporting frauds.
2. FIs should parallelly look at technical aspects and build a mechanism to enable customers to report fraudulent transactions to the CPFIR.