New Delhi: An inter-ministerial panel set up to finalize the Payment and Settlement Systems (PSS) Act, 2007, recommended a host of measures to create a regulatory framework for India’s payment systems. The draft PSS Bill, 2018, was submitted to finance minister Arun Jaitley last week. The new regulatory regime aims to foster competition, consumer protection, systemic stability and resilience in the sector. Mint takes a look at the nature of these recommendations and its impact on businesses and consumers.

Committee proposals

The panel suggested that the payments regulator should be independent and the chairperson must be appointed by the government in consultation with the Reserve Bank of India (RBI). The regulator will have executive powers to determine standards, and will provide for imposition of fines and penalties in case of failure to comply with regulations. In essence, the panel has suggested an independent body to regulate payments by both banks and non-banking entities, and will also take consumer welfare into account.

Why an independent payments regulator?

So far, RBI has been regulating non-banking institutions for payments, but the system was somewhat inadequate. This has enabled these entities to emerge as significant players within a relatively short time frame. But with payments being regulated independently, banks will face competitive pressure to innovate and non-banks will enjoy an equal opportunity to compete. Fintech companies, which require connecting to banking systems to serve their customers tend to face restrictive practices. “This anti-competitive setting is not conducive for innovation and consumer interest," said the committee in its report. The independent payments regulator model has already been adopted in European Union (including the UK), Australia and South Africa.

“Having an independent regulator means that the fin-tech industry is being recognized and acknowledged as an important part of the economy. Additionally, as entrepreneurs, we are always looking at exploring various interesting opportunities, be it logistics, lending or even e-commerce. The independent body will help streamline and provide for better structuring of the industry," said Sampad Swain, CEO and co-founder, Instamojo, an online payments solution provider.

For the consumers

Consumer protection will be one of the most important objectives for the payments regulator. Protecting interest of consumers, ensuring safety and creating trust and confidence in the payments system has been envisaged in the bill. The panel has also mandated representation of consumers on the governing body of the payments regulator. This will ensure that the concerns of the consumers are taken note of and effectively addressed.

The role of other stakeholders

The Payments Regulatory Board (PRB) will have to make reference to RBI before making any regulations for designated systems. The panel also provides RBI with the power to make a reference to PRB to consider any matter, which in the opinion of RBI is important in the context of its monetary policy. The role and ownership of National Payments Corporation of India (NPCI), however still remains unclear. The panel, while turning down the finance ministry’s recommendation to provide for public/government ownership of at least 51% equity ownership in NPCI, said that matters pertaining to NPCI should be considered separately at an appropriate forum.

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