Comments & View Points of P Ravindra, Card based Electronic Payment Systems Risk and Compliance Professional & Consultant, Mumbai India; Former banker and Former Adjunct Faculty, IDRBT (Comments provided below the respective points in blue font) Draft Proposals For Facilitating Electronic Transactions 1. Objectives Improve the ease of conducting transactions for an individual Build a transactions history to enable improved credit access and financial inclusion. Reduce the risks and costs of carrying cash at the individual level. Reduce costs of managing cash in the economy. Reduce tax avoidance Reduce the impact of counterfeit money. 2. Scope Provide access to financial services to every citizen along with ability to conduct non cash transactions Electronification of Government Collections by equipping each collection desk with a method to accept non cash receipts Migrate payment transactions from cash dominated to non-cash through incentivization of electronic and disincentivization of cash based transactions Enhance acceptance infrastructure in the country to promote electronification of transactions Encourage Government, Corporates, Institutions and merchant establishments to facilitate non cash payments 3. Definition 4. Goal E-transactions are defined as transactions in which the customer authorizes the transfer of money through electronic means, and the funds flow directly from one account to another. These accounts could be held in banks, or with prepaid instrument providers. These transfers could be done through means of cards (debit / credit), mobile wallets, mobile apps, net banking, Electronic Clearing Service (ECS), National Electronic Fund Transfer (NEFT), Immediate Payment Service (IMPS), or other similar means. The goal of the proposed policy is to provide the necessary incentives to use E- transactions to replace the use of cash - either in government transactions, or in regular commerce over a period of time through policy intervention.
5. Way Forward The draft proposals detailed in this section, have been prepared after due deliberations and consultations with various stakeholders which includes RBI, NPCI, NIBM, public and private sector banks, card service providers, mobile service providers, research institutions, organizations working in this area and various government departments. It is a very good initiative for facilitating electronic transactions and the objectives are achievable. As it is only at proposed policy stage, one more feed back from persons who have provided inputs at this stage may be obtained after detailed working level document is worked out. 5.1 Enabling policy for E-transactions in Government Collections At present, Government Departments/Central Public Sector Undertakings/Organizations levy a convenience fee/service charge/surcharge for making E-transactions (card payments) to essential commodities, utility service providers, petrol pumps, gas agencies, railway ticket counter/irctc etc. The feasibility of removing the charges will be examined. o Presently different charges are being levied for different types of transactions like petrol pumps, IRCTC etc. Instead of completely removing the charges, feasibility of levying differential charges for debit card and credit card transactions may be examined because cost dynamics for a Pay Now (Debit Card) and Pay Later (Credit Card) or completely different on account of higher risk and interest free credit period for credit card product o Feasibility of exempting service tax on E-transactions may also be examined as an incentive to end consumers Utility service providers could be advised to give a discount to users for small ticket payments through E-payments, on the lines of BSNL, which provides an incentive of 1 per cent of the billed amount if the payment is done through electronic mode. Government Departments to introduce appropriate acceptance infrastructure or adopt national E-payment gateway PayGov India for collection of revenue, fee, penalties etc. 5.2 Measures to promote wider adoption of E-transactions At present, there is a Merchant Discount Rate (MDR) of 0.75% on Debit Card transactions upto Rs.2000 and 1% on all transactions above Rs.2000. The
possibility of reduction in the MDR and the rationalization of the distribution of the MDR across different stakeholders will be examined. Rationalization of MDR on debit cards is a welcome feature. However, MDR on credit cards shall be left with the market forces to have healthy competition amongst the players in the market. The objective of low MDR charges can be better achieved by regulating inter-change fees at a lower and more rational level instead. The existing inter-change fee on Debit/Credit Card transactions are not uniform and need to be standardized / rationalized to encourage both issuing and acquiring banks to establish and utilize acceptance infrastructure. o Standardization / rationalization of inter-change fee on Debit / Credit Card transactions are very much needed. The existing interchange on credit cards (particularly overseas cards, corporate, purchasing and premium cards) is very high and is a burden to the payment eco-system. o Standardization / Rationalization of inter-change fee on Debit/Credit Card transactions shall be uniform across all card schemes and irrespective of whether it is domestic or cross border card. It shall be reasonably less than the rationalised MDR to meet the transaction cost with reasonable margin for the acquirer. Minimum of 30 basis points of margin shall be ensured to meet the investment and transaction costs of various participants in the transaction process or a flat fee per debit card transaction can be considered as inter-change. o Inter-change may be regulated by the RBI. Tax benefits could be provided to merchants for accepting electronic payments, e.g. an appropriate tax rebate can be extended to a merchant if at least say 50% value of the transactions is through electronic means. Alternatively, 1-2% reduction in value added tax could be considered on all electronic transactions by the merchants. o Tax benefit to merchant based on percentage value of the transactions through electronic means May not be an ideal solution. It will encourage the merchant to manipulate the sales data to get the tax benefit
o Alternative proposal of reduction in VAT on electronic transactions may be examined Tax benefits in terms of income tax rebates to be considered to consumers for paying a certain proportion of their expenditure through electronic means. o Tax benefit on income tax will not benefit all end consumers, particularly small consumers who do not fall under IT paying category. o Alternatively, feasibility of Service Tax / Sales Tax benefit on all E- transactions may be examined to encourage the consumer to desist from cash transactions because his purchases of goods and services will now cost him less money. The authentication requirements for different classes of transactions could be re-examined based on the risk profile and safety requirements. Re-examination of authentication requirements for different classes of transactions is a welcome proposal and very much needed to avoid hardships in small ticket card present transactions. Our vision is that the vegetable vendor having a push cart gets paid by card from a house wife making her daily purchases. The easiest way to reduce investment in technology is to allow a mag stripe reader costing hardly Rs. 200 to connect with the vendor s smart phone and all transactions below a particular value (e.g. Rs. 2,500) are authenticated by mag stripe alone without fall back to chip and PIN. Consider a levy of a nominal cash handling charge on transactions greater than a specified level. Levy of a nominal cash handling charge on transactions greater than a specified level is a favourable initiative to discourage cash transactions. This should be on all deposits and withdrawals at bank branches and ATMs. The amount collected under this scheme may be ploughed back into the technology development for promoting E Transactions Mandating settling of high value transactions of, say, more than Rs. 1 lakh, only by electronic means. At present, banks have to report the aggregate of all the payments made by a credit cardholder as one transaction, if such an amount is Rs. 2 lakhs in a
year. To facilitate high value transactions, the ceiling of Rs. 2 lakhs could be increased to say Rs. 5 lakhs or more. 5.3 Creating enabling environment / acceptance infrastructure It has been observed that acceptance infrastructure, particularly Point of Sale (PoS) / Mobile PoS terminals as a percentage of the total number of Debit/Credit Cards is very low. Therefore, mandating banks issuing cards to deploy POS terminals in a prescribed ratio could be considered. o Besides mandating banks issuing cards to deploy POS terminals in a prescribed ratio, NBFCs could also be authorised to deploy POS terminals and acquire transactions independently with settlement accounts with a bank. The payment system providers should register such NBFCs as principal participants in their schemes directly at affordable charges. o NBFCs shall also be authorised to participate as a direct credit card issuer and acquirer and also set up payment gateways Like in ATMs, non-banks could be authorized to install white label POS terminals. Improve broad band connectivity to enable mobile based payments on a wider scale. 5.4 Encouraging mobile banking/payments channels Currently, the telecom companies are levying an Unstructured Supplementary Service Data (USSD) charge of Rs. 1.50 per transaction for mobile banking/payments. To enhance adoption of mobile banking/payment, the USSD charges could be examined and rationalized. Appropriate changes in the regulatory structure, if required, to promote mobile based payment systems. With more than 900 mn mobile population in India, encouraging mobile banking / payment channel is a very much needed initiative 5.5 Awareness and grievance redressal Assurance mechanisms for fraudulent transactions to be created wherein, in case of a fraudulent transaction, the money will be credited back to customer s account and blocked and subsequently released after the investigation is complete/ limited to say a maximum of 3 months.
6. Other Issues While the Payments and Settlement Systems (PSS) Act, 2007 governs this area, changes in the regulatory mechanisms could be examined to ensure that innovations in the payments ecosystem continue to happen. The linkages with Aadhaar based identification for authentication could also be strengthened. The fee structure of Payment System providers is on a very high side. It needs to be reviewed and brought down to leverage the payment ecosystem in India. The fee structure may be regulated by the RBI ***** P. Ravindra, Card based Electronic Payment Systems Risk and Compliance Professional & Consultant Mumbai India; E-mail pegatravi@hotmail.com Over 37 years of professional experience in Atos Worldline India Pvt. Ltd (Venture Infotek Global Pvt. Ltd.) and Syndicate Bank in the areas of Payment Systems, Risk Management and Compliances Former Adjunct Faculty (Professor) at Institute for Development and Research in Banking Technology (IDRBT), Hyderabad Would be available to present the view points in person