• Recently, the Reserve Bank of India (RBI) has proposed to enable, in a phased manner, payment system operators to take direct membership in RTGS and NEFT.
  • Real Time Gross Settlement System (RTGS) and National Electronic Fund Transfer (NEFT) are the Centralised Payment Systems (CPSs) of the RBI.
  • Non-bank payment system operators, regulated by the RBI, will be allowed to take direct membership in CPSs.

Centralised & Decentralised Payment Systems

The centralised payment systems will include Real Time Gross Settlement (RTGS) System and National Electronic Fund Transfer (NEFT) system and any other system as may be decided by RBI from time to time.

  1. RTGS: It enables real-time transfer of funds to a beneficiary’s account and is primarily meant for large-value transactions.
  2. Real time means the processing of instructions at the time they are received and gross settlement implies that settlement of funds transfer instructions occurs individually.
  3. NEFT: It is an electronic fund transfer system in which the transactions received up to a particular time are processed in batches.

It is generally used for fund transfers of up to Rs. 2 lakh.

The decentralised payment systems will include clearing houses managed by RBI (Cheque Truncation System (CTS) centres) as well as other banks (Express Cheque Clearing System (ECCS) centres) and any other system as decided by RBI from time to time.

Important points:

  • Direct Membership of NEFT & RTGS to Payment System Operators:
  • This is expected to minimise settlement risk in the financial system and enhance the reach of digital financial services to all user segments.
  • These entities will, however, not be eligible for any liquidity facility from RBI to facilitate settlement of their transactions in these Centralised Payment Systems (CPSs).
  • This will be subject to an overall limit of Rs. 2 lakh for non-banks.
  • Prepaid Payment Instrument (PPI) issuers, Card Networks, White Label ATM operators, Trade Receivables Discounting System (TReDS) platforms are going to become members of CPS.
  • Mobile wallets like Google Pay, Mobikwik, etc. can provide NEFT and RTGS facilities etc to their customers.
  • Transfer will be allowed only to KYC (know your customer)-compliant entities.

Facility of Cash Withdrawal:

  • RBI has also proposed to allow the facility of cash withdrawal, subject to a limit, to non-bank entities — full-KYC PPIs of non-bank PPI issuers.
  • Currently, cash withdrawal is allowed only for full-KYC PPIs issued by banks and this facility is available through ATMs and Point of Sale terminals.
  • Holders of such PPIs, given the comfort that they can withdraw cash, are less incentivised to carry cash and consequently more likely to perform digital transactions.

Increase Digital Transactions:

  • Just as use of Unified Payment Interface (UPI) increased over the last 4-5 years since it was opened to third-party aggregators, opening the payment system to non-banks would increase digital payments and transactions significantly.
  • It will enable non-banks to go for full KYC compliance and interoperability.
  • It will prepare a digital trail of all individuals doing digital transactions on channels outside the banking system, which could help the overall financial system.
  • Interoperability of the PPI wallet will expand the market size and will be beneficial to the end consumers.
  • This will open new opportunities for PPI issuers as they will be able to provide RTGS and NEFT services to the wallet users. Overall, this will take financial inclusion deeper in the country.
  • The opening up of fund transfer and cash withdrawal through non-banks is certainly a sign of a changing banking horizon. Traditional brick-and-mortar banking is slowly disappearing with non-banks entering the space.
  • The RBI says India is on the way to becoming Asia’s top FinTech hub with an 87% FinTech adoption rate as against the global average of 64%.
  • Fintech (Financial technology) refers to the integration of technology into offerings by financial services companies in order to improve their use and delivery to consumers.
  • The FinTech market in India was valued at Rs. 1.9 lakh crore in 2019 and is expected to reach Rs. 6.2 lakh crore by 2025 across diversified fields such as digital payments, digital lending peer-to-peer (P2P) lending, crowdfunding block chain technology, distributed ledgers technology, big data, RegTech and SupTech.

Way Forward

In a world where FinTech companies are leading in terms of the volume of digital transactions and playing a more active role in the banking and finance industry, it is important that commercial banks adapt to the technological changes and work in tandem with these entities so that in future they are part of the ecosystem rather than competing with FinTech companies for business.


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