The RBI in its ‘Payments Vision 2025’ said it would explore the options to ring-fence the domestic payments system due to the emerging geo-political risks
The guidelines for domestic storage of payments data is currently in place, while banks and non-bank PSOs are allowed to process payment transactions abroad
Payments Vision 2025 aims to increase the number of digital payment transactions by more than 3X by 2025
The Reserve Bank of India (RBI) will explore the options to ring-fence the domestic payments system and mandating domestic processing of payments solutions.
While the guidelines for domestic storage of payments data is currently in place, banks and non-bank payment system operators (PSOs) are allowed to process payment transactions abroad subject to certain conditions, the RBI said in its ‘Payments Vision 2025’ document released last week.
“Keeping in view the emerging geo-political risks, options shall be explored to ring-fence domestic payment systems, including the need to mandate domestic processing of payment transactions,” the central bank said.
While the RBI did not elaborate on the ‘geo-political risks’, it could likely refer to the mounting tensions amid the Russia-Ukraine war. India and Russia are still streamlining payment alternatives to circumvent the sanctions imposed on Russia in the aftermath of declaration of war on Ukraine.
Currently, RBI mandates all payments related data be stored in the country. In cases where data is processed outside the country, it has to be deleted from servers abroad and brought back to India within 24 hours.
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Highlighting the role of payment aggregators (PAs) and payment gateways (PGs), the RBI said that transparency in operations of such players is needed. The central bank further added that it has issued instructions for regulating activities of online PAs and also provided baseline technology-related recommendations to Payment Gateways (PGs).
The RBI also said that it would mull bringing all significant payment intermediaries under its direct regulation.
Domestic Storage Of Payments Data
The RBI’s statement is likely to cause consternation among payment companies. The mandate may force companies to set up data centres and servers in India to process these payments. This may entail huge operational costs.
When a similar order mandating storing of payments data in India was announced by the central bank in 2018, it had faced severe backlash from fintech players. The companies had cited the issue of high costs then, but many later complied with the norms.
The RBI even barred global players such as Mastercard, Diners Club and American Express last year from issuing new debit and credit cards for not adhering to the data storage norms. While the restrictions on Mastercard were revoked last week, Diners Club and American Express continue to be barred from onboarding new customers.
India’s digital payments market is booming with e-transactions rising exponentially. According to the data released by the government, UPI recorded more than 595 Cr transactions worth INR 10.4 Lakh Cr in May this year.
The RBI’s ‘Payments Vision 2025’ aims to increase the number of digital payment transactions by more than 3X by 2025 and targets an annualised growth of 50% for UPI payments and 20% for Immediate Payment Service (IMPS) and National Electronic Funds Transfer (NEFT).