Table of Contents
Via our Payments Digest, we aim to provide a view on key developments with payments regulations each month. Discussions for Edition 8: The RBI has issued a new master direction on PPIs- what has changed? Payments banks can now act as banker-to-an-issue- what does this mean for them and for customers? The UPI Mapper pilot will be launched from October- how does this change UPI payments, and more.
PART I: Revised RBI norms for prepaid payment instruments
This May, the RBI introduced several important and welcome changes for PPIs. This included mandatory interoperability, allowing m-wallets to gain UPI handles and prepaid cards to become card network affiliated, in turn allowing wallet payments via UPI/ card infrastructure. Balance limits were also enhanced to Rs.2 Lakhs and cash withdrawal was permitted for non-bank PPIs. These changes brought PPIs more on par as an effective substitute for a bank account. Providing a simpler way to access banking services and reducing the gap between bank and non-bank issuers, these steps increased the demand for the PPI license, making PPIs a good basis for banking the unbanked and providing banking-as-a- service. This is discussed in detail in a previous edition.
The RBI has now issued a fresh 2021 Master Direction for PPIs (‘MD-PPIs’). The new direction essentially consolidates the old 2017 Master Direction with other guidelines including the 2018 PPI Interoperability guidelines, the recent May amendments and requirements under July’s notification on the CPS (NEFT/RTGS) membership for non-bank PPI issuers into one. Broadly, the norms remain the same, with key changes being a simpler re-categorisation of the PPIs as small PPIs and full KYC PPIs, and making the authorisation validity for a PPI issuer perpetual. An AFA requirement has also been introduced for all debits to wallets including cash withdrawals. Details of the changes are outlined below.:
Summarising key changes in the new MD-PPI 2021
|PPI Categories||Former ‘semi-closed’ and ‘open’ system categories removed, new categories:|
* Small PPIs with cash loading facilities (formerly min. details PPIs upto Rs.10k)
* Small PPIs without cash loading facilities (formerly min. detail PPIs upto Rs.10k with loading only from bank account)
* Full KYC PPIs (formerly semi-closed/open system PPIs, upto Rs.2L)
|Authorisation period||Formerly 5 years, now perpetual. Cooling period of 1 year introduced for rejected/ revoked/ surrendered authorisations|
|Use of V-KYC||V-KYC allowed for opening full KYC PPIs & converting small PPIs|
|AFA||AFA also required for all debits to wallets including cash withdrawals, in addition to AFA for card payments as per debit card norms. PPI-MTS and gift PPIs exempted|
|Interoperability||Consolidates mandatory interoperability requirements via UPI/cards and for QR codes by March 31st, 2022|
|Cash withdrawal||Consolidates cash withdrawal requirements for full KYC PPIs. Limits of Rs.2k per transaction + Rs.10k overall per month for all non-bank PPI withdrawals (ATM, PoS, etc.) and for bank PPI withdrawals from PoS|
|Others||* Alerts for offline transactions|
* Regulatory NOC within 30 days (earlier 45) for banks seeking RBI approval
* Due diligence also required for non-banks seeking RBI authorisation
* Co-branding partner can also be a govt department (in addition to Indian co./ bank)
* Funds transfer post PPI closure can be back to source/ to bank account post KYC
PART II: Payments banks as investment banks
For investors to participate in public and rights issues, banking support is required, for activities like acceptance of applications and application monies, acceptance of allotment or call monies, refund of application monies and payment of dividend or interest warrants. Banks permitted to carry out these are called ‘bankers-to-an-issue’ (‘BTI’), and earlier this was restricted to ‘scheduled banks’, or banks like commercial banks which are listed under the RBI Act’s Second Schedule.
Now the applicable regulations, the SEBI (Bankers to an Issue) Regulations, 1994 were amended this July, allowing SEBI to permit any banking company to act as a BTI. In August, unscheduled payments banks (‘PBs’) were permitted for this. In addition, they were permitted to act as ‘Self-Certified Syndicate Banks’ (‘SCSBs’), or banks recognized as capable of providing Application Supported by Blocked Amount (ASBA) services to its customers. This is a welcome move for investors, increasing the payment avenues available to them, and also for PBs, allowing them to add investment services to their offerings.
For payments banks
For the payments industry
|PBs have diversified to offer a range of services like issuing PPIs, UPI payments, bill payments, recurring payments, etc. This adds investment services to the list. Compliance with other applicable BTI/SCSB regulations will be required.|
This also adds to the many RBI steps supporting PBs, like increasing account balance limits to Rs.2 Lakhs, recent support to bank issued PPIs, allowing PBs to convert to small finance banks allowing lending to be added to service offerings, etc.
|For customers banking with PBs, they can also invest and participate in issues from their PB savings accounts (not their PPIs or current accounts). The recently enhanced limits of Rs.2 Lakhs is a welcome point here. |
This is a welcome addition to payment avenues available to investors. For example, options include UPI used as a payments option for IPO subscriptions on the NSE/BSE, NACH/AutoPay for mutual fund SIPs, use of e-wallet PPIs for mutual fund investments (permitted by SEBI in 2017), etc. PB accounts now get added to the list.
|Even with banking-as-a-service, embedded finance, etc. disrupting traditional banking services, regulators have been taking several steps supporting innovation & also allowing non-traditional players to enter the field. |
NUEs of course are an example. Then there are the numerous small bank licenses introduced with on-tap licensing, (PBs, small finance banks, universal banks), opening NEFT/RTGS membership to non-banks, the new PPI capabilities, etc. This step now adds investment services as a small bank capability.
PART III: Launch of Numeric UPI ID mapper pilot from October 2021
UPI users are familiar with the UPI VPA or ID, taking the form of ‘username@PSP’, and more often ‘mobile number@PSP’, or even a name or an email address. The use of something as simple as the mobile number as a payments address, without the need for an actual bank account number or an IFSC code, introduced a level of ease with real-time payments. This also allowed features like ‘pay to contact’, where users could detect and select payees from their contact list. The suffix of the VPA, i.e., the ‘@PSP’ part, is important to enable transactions to be routed to the correct PSP. An issue that sometimes arose here was with UPI apps being unable to automatically detect and make payments to UPI IDs of a different PSP/TPAP.
Aiming to resolve this interoperability issue, and also to encourage UPI adoption on feature phones, a simpler payments address was required. To resolve these issues, the NPCI recently introduced a ‘Numeric UPI ID mapper’, the pilot for which will be launched from October 1st this year. The mapper will host a ‘UPI Number’ which will be a numeric ID. This can be the customer’s mobile number, and will be mapped to the original alphanumeric UPI ID customers already have. This mapper will now handle transaction routing, thus freeing from dependency on the suffix and introducing interoperability.
For UPI PSPs/TPAPs
For the payments industry
The pilot period will be from October 1st to December 1st, 2021, and during this period PSPs/TPAPs can onboard a maximum of 5 million users per app.
For customers, setting the UPI numbers will be voluntary, and seeding with the mapper will be consent based. Apps will need to offer this option to them via pop-ups and other mechanisms. Post January 1st, 2022, PSPs/TPAPs will need to decline all mobile number based transactions where customers haven’t consented to seeding with the mapper.
All UPI enabled feature phone solutions will mandatorily need to support the entire lifecycle management for the UPI Number, i.e., register, update, deregister/delete into the UPI ID mapper.
|Setting a UPI number and seeding with the mapper is voluntary, and customers will soon see pop-ups, notifications, menu options, etc. on their UPI apps for this. Any 8-11 digit number can be chosen, but if choosing 10 digits then only the mobile number can be set. Customers can choose multiple UPI Numbers across different apps, but the mobile number as the UPI Number can only be seeded with one UPI ID.|
The UPI Number will be unique for customers across all UPI users and apps, to ensure easy transaction routing. Mobile number based payments moreover will not be possible for customers declining consent to seed from 2022, though other UPI ID payments will still be possible.
|This is another in a line of steps by the regulator to introduce interoperability in payments, previous steps being mandatory interoperability for QR codes and PPIs. Interoperable UPI payments now further add to user convenience.|
Feature phone payments has also been a major focus of the regulator, with NPCI hackathons and the RBI regulatory sandbox focussing on innovation here. The first cohort in fact featured UPI based feature phone payment solutions, so these will need to incorporate these requirements.
Overall, there is a welcome focus to enable feature phone based payments, serving to increase digital payments penetration.
Others: Device based tokenisation, PSO outsourcing norms, PIDF beneficiaries and the financial inclusion Index
- RBI extends device-based tokenisation norms: Increasing the devices on which card-saving solutions can be provided, the RBI extended the scope of permitted devices for ‘device-based tokenisation’. Apart from mobiles and tablets alone, these can now also be seen on consumer devices like laptops, desktops, wearables (wrist watches, bands, etc.), IoT devices, etc. The RBI also recently permitted ‘card-on-file’ tokenisation will be discussed in the next edition of the Digest.
- Outsourcing framework for Payment System operators: The RBI has put in place a new framework for outsourcing by payment system operators, permitting outsourcing of non-core functions alone, without the need for RBI approval. A Board approved policy and risk management practices however must be in place.
- Including SVANidhi beneficiaries for the PIDF: The RBI’s Payments Infrastructure Development Fund aims to increase payments acceptance infrastructure by subsidizing PoS terminals. Apart from tier 3-6 centers and north-eastern states, this has been extended to include street vendors identified as a part of the PM Street Vendor’s AtmaNirbhar Nidhi (PM SVANidhi Scheme) from Tier 1 and 2 cities as beneficiaries.
- Financial inclusion index: The RBI released the promised Financial Inclusion Index, to measure the extent of financial inclusion based on 97 indicators. In a range of 0-100 with 100 representing full financial inclusion, the FI-Index upto March 2021 is 53.9, against 43.4 for upto March 2017. The index will be published annually each July.
That’s all for this edition. Stay safe.
- Article by Asheeta Regidi, Payments Digest by Cashfree: March 2021, Cashfree Blog
- Article by Asheeta Regidi, Payments Digest by Cashfree: April 2021, Cashfree Blog.
- Article by Asheeta Regidi, Payments Digest by Cashfree: July 2021- e-RUPI & UPI’s changing face, Cashfree Blog
- BHIM Website: IPO live on UPI
- SEBI Circular: Instant Access Facility and use of E-wallet to invest in Mutual Funds, SEBI/HO/MD/DF2/CIR/P/2017/39
- SEBI Circular: Permitting non-scheduled Payments Banks to register as Bankers to an Issue, SEBI/HO/MIRSD/MIRSD_DOR/P/CIR/ 605/ 2021, dated 3 August 2021.
- SEBI Regulations: SEBI (Bankers to an Issue) Regulations, 1994, LE/7/94, dated 14 July 1994
- SEBI Regulations: Securities and Exchange Board of India (Bankers to an Issue) (Amendment) Regulations, 2021, SEBI/LAD-NRO/GN/2021/26, dated 30 July 2021
- NPCI Circular: Rollout of Numeric UPI ID Mapper to enable UPI Number, NPCI/UPI/OC-115/2021-22, dated 20 July 2021
- RBI Press Release: RBI releases Guidelines for Licensing of Payments Banks, 2014-2015/1089, dated 27 November 2014
- RBI Press Release: RBI releases Guidelines for Licensing of Small Finance Banks in the Private Sector, 2014-2015/1090, dated 27 November 2014
- RBI Press Release: RBI releases Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector, 2016-2017/281, dated 1 August 2016
- RBI Press Release: Statement on Developmental and Regulatory Policies, 2021-2022/17, dated 7 April 2021
- RBI Press Release: RBI releases framework for authorisation of pan-India Umbrella Entity for Retail Payments, 2020-2021/206, dated 18 August 2020
- RBI Press Release: Reserve Bank of India introduces the Financial Inclusion Index, 2021-2022/703, dated 17 August 2021
- RBI Press Release: Payments Infrastructure Development Fund – Inclusion of PM SVANidhi Scheme beneficiaries, 2021-2022/747, dated 26 August 2021
- RBI Press Release: RBI Bulletin – September 2021, 2021-2022/872, dated 16 September 2021
- RBI Master Directions: Master Direction on Issuance and Operation of Prepaid Payment Instruments, RBI/DPSS/2017-18/58, dated 11 October 2017
- RBI Notification: The Second Schedule to the Reserve Bank of India Act, 1934 (there is no notification no. etc, I checked on RBI website as well)
- RBI Notification: Prepaid Payment Instruments (PPIs) – Guidelines for Interoperability, RBI/2018-19/61, dated 16 October 2018
- RBI Notification: Tokenisation – Card transactions, RBI/2018-19/103, dated 8 January 2019
- RBI Notification: Digital Payment Transactions – Streamlining QR Code infrastructure, RBI/2020-21/59, dated 22 October 2020
- RBI Notification: Operationalisation of Payments Infrastructure Development Fund (PIDF) Scheme, RBI/2020-21/81, dated 5 January 2021
- RBI Notification: Guidelines on Regulation of Payment Aggregators and Payment Gateways, RBI/2020-21/117, dated 31 March 2021
- RBI Notification: Enhancement of limit of maximum balance per customer at end of the day from ₹1 lakh to ₹2 lakh – Payments Banks (PBs), RBI/2021-22/20, dated 8 April 2021
- RBI Notification: Prepaid Payment Instruments (PPIs) – (i) Mandating Interoperability; (ii) Increasing the Limit to ₹2 lakh for Full-KYC PPIs; and (iii) Permitting Cash Withdrawal from Full-KYC PPIs of Non-Bank PPI Issuers, RBI/2021-22/40, dated 19 May 2021
- RBI Notification: Access for Non-banks to Centralised Payment Systems, RBI/2021-22/73, dated 28 July 2021
- RBI Notification: Framework for Outsourcing of Payment and Settlement-related Activities by Payment System Operators, RBI/2021-22/76, dated 3 August 2021
- RBI Notification: Tokenisation – Card Transactions: Extending the Scope of Permitted Devices, RBI/2021-22/92, dated 25 August 2021
- RBI Notification: Master Directions on Prepaid Payment Instruments (PPIs), RBI/DPSS/2021-22/82, dated 27 August 2021
- RBI Notification: Tokenisation – Card Transactions: Permitting Card-on-File Tokenisation (CoFT) Services, RBI/2021-22/96, dated 7 September 2021