UPI, NEFT, IMPS For International Transactions? RBI Wants Payments To Cross Borders!
Many countries that are attracted by the low-cost digital payment products in India have expressed interest in replicating India’s products based on their country specific requirements. The Reserve Bank of India (RBI) is exploring the possibility of expanding its payment system abroad following ‘requests’ from several countries.
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RBI May Expand Its Low Cost Payment System Abroad!
The RBI said ‘specific interests or requests are being received’ for implementing payment systems like CTS (cheque truncation system), NEFT, UPI and messaging solutions by certain jurisdictions.
The RBI in a note on ‘Oversight framework for financial market infrastructures and retail payment systems’ said, “There is scope for enhancing global outreach of our payment systems, including remittance services, through active participation and co-operation in international and regional fora by collaborating and contributing to standard setting.”
Currently, there are no RBI authorised payment system operators providing payment services outside India. The central bank said, “However, with the availability of low cost innovative digital payment products in India, many countries have expressed interest in partnering in this growth and replicating our products based on their country specific requirements.”
The RBI said cross-country cooperation with Bhutan is already in place with CTS, NACH and NEFT operational there as well. NEFT is available for one-way transfers from India to Nepal.
Why Would The Expansion Be A Concern?
The central bank said, however, considering that efforts are being taken to increase and widen the scope, coverage and usage of RuPay card scheme — developed by National Payments Corporation of India (NPCI) — and UPI to enhance their brand value internationally, the risks of such systems would also be high. The participants in a domestic system might become dependent on the funds they are to receive in an offshore system to fund their domestic debt position, leading to possible liquidity risk issues.
According to the RBI, this could also be on account of different time zones and also due to lacking nature of suitable depth in the currency markets of such economies, and more so in the event of financial distress. In such cases, there would be a requirement for constant coordination with the concerned central banks and other regulatory authorities.
Digital Payment Preferred Over Cash In India!
The RBI also said cash, as a payment mode, is still important but it is increasingly seen as a way to store value, more than to make payments. It said, “India’s growing use of retail digital payments, along with the radical reconstruction of its cash economy, indicates a shift in the relationship with cash. This is evidenced by the steep growth observed in the retail digital payments.”
The RBI said its study revealed that while currency in circulation (CIC) across the country increased at a compounded annual growth of 10.2%over the past 5 years, the CIC to GDP reduced from 11.6% in 2014-15 to 11.2% in 2018-19. The cash withdrawals from ATMs increased during the same period, but the percentage of cash withdrawals to GDP was constant at around 17%, it said.
Moreover, while the digital payments in the country have witnessed a growth of 61% and 19% in terms of volume and value, respectively, the value of digital payments to GDP has also increased from 660% in 2014-15 to 862% in 2018-19. In addition, the deployment of ATMs has grown at a low pace of 4% and the PoS terminals contrastingly grew at a high pace of 35%, it said.
The parameters considered as indicative of cash payments are currency in circulation (CIC), share of high value denominated currency and low value denominated currency and cash withdrawals from ATMs.
The parameters used for assessing the level of digitisation were growth of digital payments, digital payments to GDP and infrastructure.