The National Payments Corporation of India, or NPCI, might have to give up its poster boy product — Unified Payments Interface (UPI) — to be regulated by the central bank, two sources close to the development told FactorDaily.
“A body will be created by the RBI, which will regulate UPI payments,” said one of the sources, close to the developments within the central bank. “NPCI might not take decisions on UPI payments after that.”
The other source, who is a government official said that there were audits done by the RBI on UPI. “There is no smoke without fire… But the decision hasn’t been taken,” the second source said. “If you see, RBI has already given a dissent note that payment regulatory board should be under its purview.”
The NPCI is a not for profit organisation for retail payments in India formed by a set of public and private banks to improve the payments and settlement infrastructure in India. The organisation operates payments infrastructure such as National Financial Switch (NFS), the largest network of shared ATMs in India, Cheque Truncation System, RuPay (a card payment system like Visa and MasterCard), the Aadhaar Enabled Payment System and so on. The UPI was launched in April 2016, mostly to make small transactions faster.
Since the launch of UPI, NPCI has been looking into the digital payments system matters — both on the product and regulatory front. While product and its further enhancement will still be taken care of by NPCI, the regulatory aspect of it should lie with the RBI, the second source said.
An NPCI official declined comments on the subject. A mail to the RBI sent on Sunday, has not been answered. This story will be updated if we receive a response.
The developments come after there has been a series of reports on Whatsapp and Google Pay not adhering to NPCI guidelines on UPI payments. One charge against the payments body, as voiced by a senior executive of a payments company has been that it has not taken action against international companies when they have broken rules or regulations. This executive declined to be identified.
UPI, which was developed and launched by NPCI a couple of years ago is slowly becoming a powerful mode of digital money exchange amongst peers and for retail transactions, as it uses the users’ bank accounts to debit and credit the money directly.
In 2017-18, UPI transactions totaled up to 915.23 million worth Rs 1,09,832 crore. In the first five months of 2018-19, already 1,096.88 million UPI transactions have been recorded worth Rs. 1,70,532 crore. With the number of transactions in September topping 400 million, the volume of UPI-based payments has overtaken that on all other proprietary mobile wallets.
RBI’s dissent note
With the rise in smartphones, especially after demonetisation, there has been a consistent rise in mobile payments. UPI helps it do better. The platform doesn’t require a user to load money on to a mobile wallet, which is used to make further payments (the business on which Paytm was built). The user has to connect his UPI account with his bank account to make a transaction. Either by using phone numbers or pairing devices the payment goes through. The amount is directly credited or debited from the bank account.
“UPI is just a channel,” said a senior banking executive, who also did not wish to be named. “Anything to do with payments and the banking system should be under the remit of the RBI.”
Meanwhile, the RBI has given a dissent note or what can be called as an objection that a payments regulator should be sitting outside the central bank.
“Payment systems are a sub-set of currency which is regulated by the RBI. The overarching impact of monetary policy on payment and settlement systems and vice versa provides support for (the) regulation of payment systems to be with the monetary authority,” the dissent note said. “There is an underlying bank account for payment systems which is under the purview of banking system regulation which is vested with the RBI.”
The first source also said that taking away regulatory responsibilities from NPCI and putting it with RBI might be an extension of the dissent note. “Settlement systems are finally posted in the books of account of banks with the RBI to attain settlement finality. Regulating these entities goes hand in hand with the settlement function,” the dissent note added.
Maker and the regulator
Market watchers feel that convergence comes with its own woes. Finance, telecom and technology are increasingly converging. “In a situation like this going out of the way to create separate bodies (to regulate payments) is not a good idea,” said Mahesh Uppal, a communications regulatory analyst.
Uppal, however, added that he is opposed to merging of regulatory authorities, like that of NPCI into RBI. “For RBI to have a unit to deal with NPCI is a good idea. I don’t think in this day and age, one should create separate bodies to handling the same thing,” he said.
He also said that like everything to do with telecom resides with the telecom regulatory authority of India, to create anything which changes the mandate of the RBI and create an autonomous body, it doesn’t sound like a good idea.
It won’t be easy for RBI to deal with UPI’s technology situations. Both Google Pay and WhatsApp have been under the scanner for sharing data with their parent companies, who make money from digital advertisements. WhatsApp is owned by Facebook.
UPI and mobile payments are nascent in India. As the market and its users grow, it would need robust guidelines to prevent misuse of data and money.
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