Monthly Archives: October 2012

RBI’s Payment Systems Vision 2012-15: Moving Beyond Regulation

The Reserve Bank of India (RBI) has released its Payment Systems Vision 2012-15. This is the central bank’s fourth such document. It published the first one in December 2001, detailing the payment system vision till 2003. Subsequently, it has continued publishing it every three years—in 2004 for 2005-08, in 2009 for 2009-12, with the latest one coming a couple of days back.

RBI had actually released a draft in June 2012 for comments. Based on the feedback, it has made some changes and released the final document.

A vision document by a regulator/policymaker achieves two great purposes.

One, it gives some clarity to the stakeholders on the direction of policy making, without the fear of flip-flops that we have seen in a few sectors such as telecom.  The actual rollout speed may be a little faster or slower, but it is not a guesswork.

Two, by making the vision clear to all, a good regulator can carry all stakeholders with itself to pursue a shared dream. That is progressive policy making.

This progressive yet cautious stance, that has won RBI appreciation worldwide, has helped India achieving significant success in converting a significant part of transactions to electronic transactions, though cheques still remain the biggest mode of payment, as far as volumes go.

It is interesting to examine how the vision has progressed. In its 2005-08, the vision was “the establishment of safe, secure, sound and efficient payment and settlement systems for the country”. So, it wan an intent, more than anything else.

The next vision document (2009-12) became bolder when RBI asserted that it wanted to “to ensure that all the payment and settlement systems operating in the country are safe, secure, sound, efficient, accessible and authorized” . It was now no more an intent; it was a mandate it gave to itself as a regulator. It promised the nation to make it happen.

Also, with the UPA government focused on aam aadmi and social inclusion,  financial inclusion as an idea was taking strong roots among policy makers. That thrust saw RBI adding “accessible” to its Payment Vision. It was sort of a passive intent towards inclusion.

That passive intent has become a proactive stance in the current vision statement as it adds the word “inclusive” to the vision. Financial inclusion initiatives have progressed a lot between then and now.

But that addition was along expected lines. What is more noteworthy are the addition of interoperability and compliance.

When RBI released the draft vision in June, the mission statement read something like this: To ensure payment and settlement systems in the country are safe, efficient, interoperable, authorised, accessible, inclusive and compliant with international standards.

There was a separate vision statement (a long-term goal perhaps): To proactively encourage electronic payment systems for ushering in a less-cash society in India.

But the final vision document released recently integrates the above goal to the vision statement itself and the final statement reads:

To proactively encourage electronic payment systems for ushering in a less-cash society in India and to ensure payment and settlement systems in the country are safe, efficient, interoperable, authorised, accessible, inclusive and compliant with international standards.

That is not surprising. In May this year, the then Finance Minister Pranab Mukherjee released a white paper on black money, that stressed on the need to move to electronic payments to curb the circulation of black money. Since then, RBI has taken a few measures such as slashing of debit card transaction charges that would help more and more people turning to electronic transactions.

However, RBI realizes that a less-cash society is still more of a dream than a vision and it is worded accordingly: to proactively encourage. But by making it part of the main vision, it is ensuring that it is a dream that it will pursue. It is not  daydreaming.

Some of the major visions that the document lists are

  • efficiency and effectiveness enhancement in the payment systems (a continuous process)
  • standardization, portability and inter-operability (a new objective)
  • development of infrastructure and integrated payment system (RBI has been pursuing this for some time)
  • managing risk in payment systems (has been an overall objective)
  • compliance with international systems (though RBI has taken a number of steps, this is for the first time that it has been inserted to the vision)
  • promote access and inclusion (A major driver of RBI’s economic policies, but has been inserted to Payment Vision for the first time)
  • payment systems literacy and visibility (goes with RBI’s thrust on increasing financial literacy)
  • new products and innovation (something that  has been dealt with RBI in various forms of late)
  • moving towards a less cash society (a dream worth pursuing)

With this Vision Document, RBI has played more as a visionary economic policy maker than just a smart and progressive regulator.

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