RBI may mandate domestic processing of payment transactions

Subject: Economy

Section: Monetary Policy

Context: Keeping in view the emerging geopolitical risks, options are being explored to ring fence domestic payment systems

What are the present guidelines regarding processing of payment transactions?

Under current regulations, even though there is no bar on processing payments outside India, the data shall be stored only in India after processing
The complete end-to-end transaction details should be part of the data
If the processing is done abroad, the data should be deleted from the systems there and brought back to India in not later than one business day or 24 hours from payment processing, whichever is earlier

What is the reaction of the payment entities for this move?

If the RBI mandates domestic processing of transactions, many multinational payment entities may find it tough to comply because if they have to start processing transactions also in India, then they may have to make more investments here which can turn the operations costly

RBI’s other measures to expand the footprint of India’s Payment systems:

The RTGS system presently settles domestic fund transfer transactions on a gross basis. The RBI now wants the system, which runs on ISO 20022 standards to suit domestic requirements, streamlined with the internationally accepted standard for cross-border fund transfers.
The feasibility of expanding RTGS to settle transactions in major trade currencies such as dollar, pound, euro, etc., shall be explored through bilateral or multilateral arrangements.
The arrangements could be expected to provide real-time proceeds in foreign currencies to traders and establish the country as a major centre for international financial trades
Payments Vision 2025 looks to establish India as a powerhouse of payments globally.
One of the most important forward-looking initiatives is the global outreach of UPI, RTGS, NEFT and Rupay cards with internationalization, where bilateral treaties with nations especially covering the dollar, pound and euro will hugely benefit Indian residents

Concept:

NEFT:

National Electronic Funds Transfer (NEFT) is a payment system that facilitates one-to-one funds transfer.
Using NEFT, people can electronically transfer money from any bank branch to a person holding an account with any other bank branch, which is participating in the payment system
Fund transfers through the NEFT system do not occur in real-time basis and the fund transfer settles in 23 half-hourly batches

RTGS:

Real-Time Gross Settlement (RTGS) is a payment system in which the money is credited in the beneficiary’s account in real-time and on a gross basis.
The RTGS system is primarily meant for large value transactions that require and receive immediate clearing

Unified Payments Interface (UPI)

It is a mobile based instant real time payment system for transferring funds between bank accounts.
It enables bank account holders from different banks to send and receive money using only their Aadhaar unique identification number, mobile phone number, or virtual payment address without having to enter bank account details.
Popular UPI apps are BHIM, PhonePe, Google Pay