53. Payments Digest-III
It’s been a year since we went into lock down… and I am sure you are overloaded with articles with some tacky titles like ‘Coronaversary’, ‘The year that wasn’t’, ‘Was it WFH or NFH (netflix from home)‘, ‘I learnt Yoga, what did you do?’… Anyway, as we all know how exactly the year was, I won’t waste more of our time on that and keep this update only to the payments world.
Last year, around the same time, Yes Bank was put under moratorium, the FinTechs / PSPs/PAs who were using Yes Bank’s APIs (Payout, UPI, PG etc.) were blacked out for days. Few PAs had immediate fallbacks (e.g. switched to different acquiring banks to process transactions) but PhonePe went down completely for a couple of days. That is the classic example of single point failure…. with this point, let me start with the first update.
A. NUE (New Umbrella Entities)
Earlier, RBI had published a policy-paper on risk with NPCI. As you know, NPCI manages ~60% of retail payments on its platforms (UPI, AePS, IMPS, BBPS, NACH etc.). To remove the dependency of single point failure, RBI called for the forming of NUE (New Umbrella Entities).
An NUE is a consortium of various companies that are experienced in the payments space in various capacities and selected NUE(s) is expected to build infrastructure/platforms/products to cater to domestic payments (maybe even cross-border payments).
RBI laid our various guidelines for capital requirements, share holding patterns & governance.
Here is the complete set of guidelines and below is the summary of that
- NUE to be Incorporated in India under companies act 2013 and will operate as a ‘for profit’ company
- Follow PSS (Payment Settlement Systems) Act
- Company with more than 25% share will be considered as promoter
- Rs.500Cr paid up capital with upper cap of 40% for the promoter and NUE should maintain a net worth of Rs.300Cr
- Should follow good corporate governance; RBI will approve the board of director and also, may nominate board member
Players: Below is the list of NUE groups (Looks like IPL among FinTechs companies)
Note: SBI, Bank of Baroda and HDFC wanted to have their own consortium, GOI didn’t allow it. But imagine, this would have been the killer combination with two of the biggest account and card issuers !!!
Last date for the submission is 31-March-2021 (Extended from earlier deadline for Feb end). RBI may take a few months to select NUEs. So mostly, we will see action from these NUEs only in 2022 (at best)
What to expect from NUE?
In simple words, an NUE has to do better than NPCI’s products/platform to gain traction. Can they build another UPI like solution? Maybe not… but yes, definitely there is a lot that can be done in areas of bank transfers, cross-border payments, recurring payments and even at ATMs. I am sure interesting things will unfold once NUEs start rolling their products… I will write about those when the time comes.
B. Saving (private) ‘Card’
We are a couple of months away from the deadline for PA/PG certification. It will be interesting to see the result especially how smaller aggregators will meet the capital requirement.
RBI clarified the ‘saving card’ question… As per the recent update, not just merchants (e.g. Flipkart, Amazon) even the payment aggregators (E.g. RazorPay, BillDesk etc.) cannot store the cards. This is a troubling update for all the entities. Naturally, merchants and PAs are back on the discussion table with RBI for relaxation.
It is understandable that RBI wants to bring in higher security to payments and the news related JusPay’s data leak might have strengthened RBI’s stance on ‘save card’ feature.
An alternative for ‘saving cards’ is the card tokenisation but the ecosystem is not (fully) ready with the solution.
Or, just store with a bank and fetch it from there… that is very much allowed and much more simpler also.
And if nothing works out then be ready to enter 16 digits every time you do a transaction :)
Updated (31st Mar 2021): RBI has extended the deadline till end of Dec’21.
C. Recurred
Totally forgot… just to add one more piece of news about the cards…
RBI had issued guidelines for SI on Cards (eMandate on cards) in Aug’19 and updated it in Dec’20 with a deadline of 31st Mar 2021.
Summary points are:
- First transaction need follow 2FA and subsequent transactions do not require 2FA
- Max amount per transaction is Rs.2000 (then updated to Rs.5000)
- Issuer to send pre-transaction notification to user 24hours before a debit
- Issuer to send post-transaction notification
- Issuer should provide an online facility for the user to cancel/opt-out
What is the concern here? Ans: Issuer sending the pre-transaction notification to the user as issuing bank won’t even know if the card is set of Standing Instruction. Issuing bank processes transactions blindly (if 2FA flag is set then ask for OTP else do not). So basically, no one is ready with the new guidelines. And it is unclear if RBI will be fine if the merchant or PA sends pre-transaction notification (easier to implement)
Impact: Merchants that have subscription models (OTTs, telcos, DTHs etc.) have to stop the existing solution. Alternatively, they can move/nudge users to other recurring solutions (UPI AutoPay or eNACH) but these solutions have their own set of problems.
BillDesk is little ahead in this with their SI Hub but not all issuers are covered. Other aggregators are building similar platforms or may end up using Billdesk’s hub. (More on this later)
RBI may not extend the deadline again as the notification is more than a year old and everyone had enough time to be ready.
Then how come no one is ready yet? Maybe for an OTT this is big, but for a bank or even for an aggregator, in their grand scheme of things, SI on Cards is minuscule… Quite possible!!!
[Updated on 31st Mar 2021] Just one day before the deadline, RBI decided to extend the deadline by 6 months (i.e. 31st Sept 2021).
D. Budget and Embargo
Before the union budget, many (everyone*) in the payments space were expecting the GOI to remove zero MDR on UPI but that didn’t happen. But two announcements from GOI are welcoming:
- GOI allotted Rs.1500 Crore to boost the digital payments. Although few are expecting that a part of the funds will be reimbursed for managing UPI & RuPay at zero MDR. But there is still no clarity on how this fund will be deployed.
- On 24th Feb 2021, GOI lifted the embargo placed on the Government Departments to avail services from private banks. Earlier, the government payments such as tax collections, pension payments etc. were done exclusively by the Public Sector Banks.
Talking about banks, recently, Fino Payments Bank became a scheduled bank. That got me thinking… what all types of banks are there in our payments universe. Here is the list for your reference
E. Shutdowns
1.3B+ people, 500M smart phones, growing economy, increase in spending power… that is India. But just because the market is big doesn’t mean everyone will succeed here, even if they are super powerful MNCs.
PayPal decided to close down its domestic business (and continue to support cross-border payments).
Truecaller also decided to shutdown its ambitious UPI business (but continue to warn us about credit card or free personal loan callers)
The list is not small… there are companies who are going at a snail’s pace for years now — Stripe, Samsung Pay, Adyen etc.
And even the mighty WhatsApp hasn’t made the impact in UPI. Maybe many of us think that WhatsApp is good for forwarding memes or wishing on birthdays/festivals but not for serious stuff such as payments… prove us wrong, WhatsApp!!!
India is a country of contrasts… a roadside tea shop guy is okay to accept UPI payment but a doctor may prefer ‘cash’. Our choices, our behaviours and our thinking cannot be summed up in boxes so many times consumer business do not work beyond the paper/excel sheets.
Remember, we are the one who used to communicate using Missed Calls that might have thrown the LTV calculations of mobile operators. (Before WhatsApp days and before incoming calls were ‘not free’ days… old days.. haan)
F. Design, Process and thus the Blunder
Talking about olden days… Do you want to see how everything looked on the internet back in the early 2000s? Here you go…
This is not ‘fossilised’ screenshot but the snapshot of the tool that was used by the Citibank N.A. to transfer funds. But by mistake, 3 people couldn’t catch the problem and ended up transferring principal amount instead of only interest amount to consortium of lenders of the bank’s client. Few of them returned the funds but others said ‘NO’ and that amount is a whopping $500 Million.
Read here (Don’s miss it)
“if something has to go wrong then it will go wrong” — This Murphy’s law is totally acceptable if your Wifi goes down during appraisal meetings but not when your actions are termed as ‘the biggest blunder in banking history’.
That is the reason the FinTechs are working towards fixing the problems of legacy tools, user experiences and processes…
G. Snack updates
Two more developments in UPI space:
(1) UPI QR will be upgraded to include GST info
(2) ‘UPI-Help’ on BHIM UPI app to help users to register complaints related to transactions (P2P, P2M), statuses and credits etc. Presently live with SBI, Axis, HDFC & ICICI. Wondering what took them so long to bring this feature?
Also,
Axis Bank launched ‘Wear n Pay’ devices (band, key chain etc.) to facilitate contactless payments almost 6 months after Titan & SBI launched contactless payment watches. My only suggestion would be — “keep your wallet close and your watches closer”
Little more update with twist:
Although RBI has mandated the upper limit for NFC or contactless payments to Rs.5000 but still POS providers yet to make changes. Also, user has to set the limits. I haven’t tried more than 2K transaction… if you happen to try it then do let me know how was your experience.
Do you know what is the layman word for NFC enabled card… ‘wifi enabled’. Don’t believe me? Listen carefully when interacting in petrol pump or grocery store.
H. Measurement
Whatta fascinating world of payments… isn’t it?
We all know that digital payments are growing big… But how big? Is the ‘big’ really ‘big’ enough? Or are they growing big uniformly? How one will measure the growth or reach of digital payments?
To answer these questions… RBI has come up with the Digital Payments Index (DPI) to measure the extent of digitisation of payments.
The RBI-DPI comprises of five parameters with different weightage and each parameter will have sub-parameters.
Mar’18 is the base year with DPI 100. DPI for Mar’19 and Mar’20 are 153.47 and 207.84 respectively. RBI is planning to publish this on a semi-annual basis. The next one will be published for Mar’21 (I will update this section when know more about DPI calculation method)
