Retail payment risks to be reduced, says Subbarao
Reserve Bank of India Governor D Subbarao today said that all signs pointed to retail payments being the drivers of the future payment and settlement architecture and the central bank would work to operationalise them within a regulatory framework to reduce risks.
Addressing a seminar in Chennai today on the payment and settlement systems, Subbarao cited international estimates which showed that the volume of retail payments in major countries far exceeded the number of large-value transactions. The value of funds transferred through electronic means in the payment systems increased from about 2 per cent a decade ago to about 74 per cent now.
The number of transactions in the retail system accounted for 95 per cent of the total transactions, which underscored the importance of focusing on retail payment systems in the country, he added.
“The establishment of the Clearing Corporation of India (CCIL) in 2001 was an early initiative by RBI to create a guaranteed platform for systemically important payment systems,” Subbarao said. He also mentioned the Indian Financial Network, established in 1999, to serve as a platform for domestic transmission of inter-bank messages in electronic mode.
The scale of cheque truncation system implemented by the apex bank was another landmark for payments and settlements, he added. Subbarao cited challenges relating to the multiple roles of the central bank, which is an operator as well as a settlement provider for the many electronic payment systems.
“The operations of these systems will eventually migrate to the proposed National Payments Corporation of India, but until that happens, our challenge is to also manage the operational aspects of these systems with adequate firewalls,” he said. Another challenge was to manage a myriad of service providers -- bank, non-banking and other entities -- which play an important role in the smooth operation of such payment systems.
According to Subbarao, multiple systems and service providers widen choice for the user, and competitive forces would ensure that the products and services were continually upgraded. Market dynamics would ensure operational efficiency when volumes are substantial.
Subbarao cited the case of the Indian mobile telephone industry, which had seen a reduction of as much as one-fiftieth in call charges since its introduction in the country. He said a beginning has already been made in the area of ATM-based payments, whereby no charges will be levied on customers for use of ATMs not belonging to their own bank from April.
Subbarao also observed that the demarcating line between large-value and retail-payment systems was getting blurred, and called for increased efforts to set up benchmarks even for retail payment systems. He added that considering the risks inherent in such systems, fresh initiatives would be needed to address customer protection issues.