Time to give Payments Banks a simpler, stable regulatory regime

January 2019

Financial inclusion has been recognized as an engine for economic performance in “Strategy for New India@75”, a report released by Niti Aayog in December. While defining the objectives of financial inclusion, the envelope has been pushed from the traditional ‘banking the unbanked’ to asset diversification through ensuring increased participation in capital markets. There is therefore a comprehensive list of tasks for the way forward, which should engage the attention of the government and all financial sector regulators.

One of the recommendations made in the report is to leverage Payments Banks and other platforms to scale up payments and financial services in under - served areas. Payments Banks have had a rocky journey since the idea was mooted in 2014 andthe financial position of Payments Banks for the year ending March 2018 has just been released by the RBI, showing losses due high initial operating costs; see Section 15 of the Report on Trend and Progress of Banking in India 2017 - 18. The latest Indicus Policy Brief “ Payments Banks – Where to from here?” covers the trajectory of Payments Banks and identifies the unstable regulatory and policy environment since inception as a key factor impacting their viability. Our suggestion is for the RBI to institute a Working Group on Payments Banks immediately to examine all operational guidelines and regulations that are increasing their cost base and reducing operational flexibility.

The “Strategy for New India@75” report also recommends creating a new data - sharing framework that will enable easier access to credit, with adequate safeguards for maintaining data privacy. Despite considerable debate in the country, data protection and privacy remain hazy areas. While India awaits a data protection law, the government has introduced the Aadhaar and Other Laws (Amendment) Bill, 2018, allowing voluntary seeding of biometric Aadhaar ID with mobile numbers and bank accounts (Economic Times, 2 January 2019). In a blog post looking at the issue of data protection and financial inclusion, Gayatri Murthy and David Medine (CGAP, 20 December 2018) note that consent alone is not enough to protect individual autonomy in a digital economy. Regulators must look afresh at not only improving the way consent is obtained, especially from low - income customers, but also must shift some responsibility to the entities that collect and process data. A complete data protection protocol would give customers the right to delete, transfer, question and correct their own data.

Latest Views

• Payments Banks - Where To From Here – ICFI Policy Brief November, 2018
Customer Protection – Limiting Liability of Customers in Unauthorised Electronic Payment Transactions in Prepaid Payment Instruments (PPIs) issued by Authorised Non - banks – RBI January 2019
• ICFI Blog: Emerging Pivotal Role of NPCI, October 2018
Pradhan Mantri Jan Dhan Yojana Progress Report
RBI Electronic Payment Systems – Data

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Latest Research

Safeguarding Rules for Customer Funds Held by EMIs, CGAP, December 2018
Safeguarding Rules for Customer Funds Held by EMIs: Country Examples, CGAP, December 2018
Labour Pains: Discovering the Financial Lives of Zambian Mothers, United Nations Capital Development Fund, December 2018

Editor: The Indicus Centre for Financial Inclusion was launched in 2011 to distil and disseminate information on accelerating the poor’s access to high-quality financial services. The centre is supported by the Bill and Melinda Gates Foundation. ©Indicus Centre for Financial Inclusion. All rights reserved. 4thJanuary 2019

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