RBI's 'Payment Vision 2025'. Will it impact Indian Fintech?

Two weeks ago, the Reserve Bank of India (RBI) unveiled its Payment Vision 2025.

This included changes to payment systems, regulation of bigtechs, fintechs, Buy Now Pay Later (BNPL) systems, and introduction of a Central Bank Digital Currency (CBDC) among others.

The announcement has created a lot of buzz in the fintech community, with some fearing increased control and regulation.

Let's discuss this in detail.

Payment Vision 2025 - Why?

RBI aims to establish India as a powerhouse of digital payments, by enabling secure, swift, and convenient e-payments without burning consumer pockets. The policy has the following objectives.

• Facilitate geotagging of digital payment infrastructure and transactions

• Reassess guidelines for Prepaid Payment Instruments (PPIs)

• Link credit cards and credit components to UPI

• Enhance Cheque Truncation System (CTS)

• Establish online merchant payment processing via mobile/internet banking

• Regulate bigtechs and fintechs

• Examine and explore BNPL guidelines

Possible Impact

• Globalize RTGS, NEFT, UPI, and RuPay cards

• Lower Cash in Circulation (CIC) as a percentage of GDP

• Augment interoperability to contactless transit payments offline

• Enhance scalability and resilience of payment systems

The Question of Regulating Fintech

The recent announcement seeks to balance innovation and systemic risks. The RBI Governor has indicated that the regulation could be in the form of activity-based regulation (similar activities will be treated similarly regardless of legal status or nature of the entity) or entity-based regulation (regulations must be applied to licensed entities or groups that engage in similar/specified activities).

India has traditionally followed a hybrid form of regulation that combines activity and entity-based regulation. As a principle, the RBI has been applying comprehensive regulatory, supervisory and oversight requirements to various segments of financial sector.

There has been a flurry of activity in the fintech community with digital lenders petitioning the RBI for a six month extension on the ban on facilitating credit through Prepaid Payment Instruments (PPIs) of their partner banks. As this is a developing story, we need to track RBI's response to these concerns and possible modifications to the policy.

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That's it for now. See you again soon with all the need-to-know fintech updates!

Stay tuned. Stay curious.