Since the last few years, the world has been heading towards all things digital. The year 2020, on the other hand, brought into sharp focus the urgent need to adapt to new technologies as soon as possible. With the implementation of the lockdown, this adaptation happened almost instantly, particularly in India for digital payments.
After demonetization in 2016, the Indian government has been actively encouraging and propagating online payments. Many economic and financial decisions forced Indians to move to online payments were driven by the idea of ‘Digital India.’
What is a digital payment?
A digital payment is an online or digital transaction that does not require a physical exchange of money. This indicates that both the payer and the payee exchange money through electronic means.
Digital payments may be made over the internet or in person. A digital payment, for example, is when you purchase something on Amazon and pay for it with UPI. Similarly, if you buy anything at your local supermarket and want to pay with UPI instead of cash, you are making a digital payment.
Is digital payment safe enough?
There have been claims that digital payment fraud has risen since the pandemic, as people have been relying heavily on digital payments to make secure monetary payments and transactions. Furthermore, the increased volume of digital payments has resulted in other issues such as device crashes, technological glitches, and so on. In the month of October 2020, the UPI processed a total of 2.07 billion transactions worth Rs 3.86 lakh crore.
The lack of supervision by bank managers as a result of work from home circumstances and improvements in existing procedures in recent months is one of the reasons for the rise in banking frauds.
The regulator recently barred HDFC Bank from issuing new credit cards and other digital launches due to the bank’s technology systems failing for an extended period of time, creating problems for customers.
Guidelines by Reserve Bank of India for Online Payments
The Reserve Bank of India (RBI) has issued detailed guidelines to strengthen India’s digital payments model and improve security, control, and enforcement among banks, gateways, wallets, other non-banking entities that are at the forefront of assisting in achieving its goal of a “less-cash” economy. The new rules come at a time when outages, frauds, and cyber breaches have become more frequent in India’s burgeoning payments ecosystem. The new regulations provide a structure for all regulated organisations to standardise their security operations in order to meet best practises.
Scheduled commercial banks, small finance banks, payment banks, and NBFCs that issue credit cards are all subject to these laws. The new set of rules also sets out the conditions under which controlled entities will form alliances and communicate with third-party apps and ecosystem players including mobile apps, payment processors, and gateways.
The Master Direction provides the required guidelines for developing a strong governance framework and enforcing common minimum security requirements for digital payment products and services. The guidelines are technology and platform agnostic, and they seek to develop and allow consumers to use digital payment products in a safer and more reliable manner.
These regulations would affect not only regulated banks, but also third-party payment apps like Google Pay, WhatsApp Pay, and PhonePe that work with banks and store customer details.
It will also have an effect on many payment gateways’ business models, which depend on delayed settlement of merchant funds to banking partners. The rules now state that settlements to nodal settlement accounts cannot be postponed by more than 24 hours by a payment operator or a bank.