The Reserve Bank of India: A Focus on Fintech and Payments

In an internal circular, the Reserve Bank of India (RBI) has announced its plans to set up a new department to focus on the fintech sector and support research on policy interventions¹. The RBI has had a fintech unit since 2018 — first under the Department of Regulation and later, under the Department of Payment and Settlement Systems (DPSS) — but has decided to make the unit its own department in response to the growing innovation and regulatory challenges of the sector. This department will be attached to the centralized administrative division (CAD) of the bank and headed by Ajay Kumar Choudhary, a new executive director of the RBI².

The announcement of a new department comes soon after a string of impactful regulatory announcements by the RBI on the Indian payments market. Last month, the RBI provided a 6-month extension on card tokenization after many in the merchant community expressed concerns around the readiness of banks in adhering to the original January 1st deadline³. The Card-On-File regulation, prevents online merchants and their processors from storing card details of users on their internal platforms, thus requiring users to re-enter their card details for every purchase.

There were difficulties concerning payment ecosystem compliance with an October 2021 deadline on additional factor authentication (AFA) for auto-debit payment s which required customers to reauthorize standing instructions for recurring payments or online subscriptions up to Rs 5,000 (USD 66)⁴. The news shocked many merchants, causing large platforms such as Netflix and Amazon to temporarily discontinue certain services or incentivize customers to switch to alternative payment solutions such as autopay on Unified Payments Interface (UPI)⁵. To maintain a frictionless customer experience, Amazon briefly suspended monthly Prime membership and free trials for new members in India⁶.

Along with the numerous changes, the RBI has stated its intention to further explore a host of other issues such as CBDCs, cross-border remittances, and MSME financing. The chief general manager of the DPSS has stated the RBI’s plans to pilot a national CBDC in the first quarter of the 2022 financial year⁷. The piloted CBDC will most likely be a basic version of the digital currency before a more sophisticated version is released to allow for testing and “minimal impact on monetary policy and the banking system”⁸. The RBI is still exploring several aspects of the CBDC such as whether the currency should be distributed by the central bank or the commercial banks and whether it will be developed for wholesale and/or retail use. As part of its responsibilities, the new department is expected to be heavily involved in the implementation and testing of these policies⁹.