RBI Sets up FinTech Department to Promote Innovation in Digital Payments


India’s apex bank, The Reserve Bank of India (RBI) has internally set up a FinTech Department to promote innovation and keep tabs on the country’s fast-evolving digital finance landscape.

In a circular, RBI said it absorbed the FinTech Division of the Department of Payment and Settlement Systems, and created a new FinTech Department under its own wing on January 4, 2022.

By setting up the FinTech Department, RBI aims to promote innovative solutions in the fintech space.

“This fintech department will not only promote innovation in the sector but also identify the challenges and opportunities associated with it and address them in a timely manner. The department will also provide a further framework for further research on the subject that can aid policy interventions by the Bank,” the RBI circular said.

The newly minted FinTech Department will also facilitate “constructive innovations and incubations in the fintech sector, which may have wider implications for the financial sector/markets…”

To add to its responsibilities, it will oversee all the inter-regulatory coordination and internal coordination on fintech.

5 big changes in India’s fintech space

While RBI didn’t specifically mention what it meant by “dynamically changing financial landscape,” here are a few changes that have happened in the last few years in the fintech space.

  • Instant Settlements

Offline and online businesses that used digital modes to accept payments from customers had to wait for days for the settlement process to get over. But now payment mechanisms like UPI, IMPS, and NEFT allow businesses to receive money from their customers instantly.

The two fastest payments rails, IMPS and UPI were created by National Payments Corporation of India in 2010 and 2016, respectively. The bank-to-bank transfer using any of these methods happens almost instantaneously.

In the past couple of years, UPI has become one of the most favorite payment modes by Indians due to its ease of usage. In November last year, there were more than 4 billion transactions made on the UPI network, which saw an exchange of Rs 7.68 trillion.

While UPI and IMPS are fast modes of payment, they have an upper limit on how much money can be transferred. Thus, the RBI-operated NEFT payment system comes in handy when one has to instantly transfer a large amount of money. There is no upper limit set by the RBI on NEFT funds transfer, which happens in almost real-time.

  • QR Code

It’s impossible to walk into a store (any type of store) and not see a few QR codes placed on their checkout counters. QR codes have revolutionised the way businesses have started accepting money.

Indian fintech behemoths such as Paytm have made QR codes a quintessential way of accepting money for businesses.

In its initial days, every payment operator had its own proprietary QR codes, which were not interoperable. However, in October 2020, RBI made it mandatory for all fintech companies to make interoperable QR codes by March 2022.

The FinTech Department might want to make QR codes more dynamic in nature in the coming future.

  • NFC Cards

Starting January 1, 2021 RBI added one more contact-less method to accept and make digital payments: payments via cards that have Near Field Communication (NFC) chips embedded in them.

RBI now allows businesses to accept money from customers who have NFC-enabled debit or credit cards.

What it means is that customers can pay for their purchases at offline stores by just tapping their NFC-enabled cards on the POS machine. This eliminates the need to swipe cards in the POS slot, making the process totally contact-less.

The caveat of accepting payments via NFC cards is that RBI has capped the transaction limit to Rs 5,000.

It would benefit businesses if the FinTech Department looks into increasing this cap by a notch without diluting the security issues.

  • Buy Now Pay Later

The Buy Now Pay Later (BNPL) payment system, a form of credit-led payment, is being touted as one of the fastest-growing in the fintech space. A RedSeer report estimates India’s BNPL market to skyrocket to $45-50 billion by 2026 from $3-3.5 billion in 2021.

BNPL checkout option such as Paytm Postpaid allows businesses to let their customers buy products without having to pay the whole amount. Customers get the freedom to pay for their purchases in EMIs.

Paytm Postpaid lets buyers shop online using this payment method without any interest fees if the payment is cleared within 30 days. BNPL is a win-win payment option for both the customers and businesses as the latter gets to convert the visitors of their website into customers.

From the regulatory standpoint, RBI is in the process of drafting norms to curb illegal digital lending activities. It has also asked the government to form new legislation in this respect.

Most probably, keeping a watchful eye on BNPL activities while ensuring innovation is not curtailed, will be one of the top priorities for the FinTech Department in the coming months.

  • e-RUPI

In August last year, NPCI launched one more innovative digital payment solution called e-RUPI.

e-RUPI is a pre-paid digital voucher, which a beneficiary gets on his phone in the form of an SMS or QR code. It is a pre-paid voucher, which the recipient can redeem at any centre that accepts e-RUPI.

These digital vouchers work even without one having a smartphone, internet access, or a net banking facility. Businesses can accept these e-RUPI vouchers by verifying them via a verification code.

While in its current avatar, it’s largely tailored to the use at healthcare facilities, it will be the FinTech Department’s job to make it more sassy and accessible so it becomes more mainstream in the coming years.

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