[By Karthika S. Babu]
The author is a student of Gujarat National Law University.
Introduction
The Reserve Bank of India (“RBI”) has recently released the Reserve Bank of India (Bharat Bill Payment System) Directions, 2024, the Master Direction for the regulation of Bharat Bill Payment System (“BBPS”). The Directions are set to supersede RBI’s earlier Implementation of Bharat Bill Payment System (BBPS) – Guidelines in an attempt to further enhance participation and consumer protection by streamlining the bill payment process under the payment system. BBPS, operated by National Payments Corporation of India (“NPCI”), is a dedicated payment system designed specifically for recurring bill payments across various utility services. The BBPS framework was proposedby RBI in 2014 to unify and consolidate the electronic payment system by creating a single brand image for bill payments in the country.
The recent Master Directions are in line with the broader attempt of RBI for the regulation of the payment systems, reflecting a concerted effort to strengthen the interoperability of the payments sector. Through the directions, RBI has shifted its focus to promoting growth and innovation in the payment system by balancing the interests of various stakeholders. The extant regulatory framework aims to encourage a second wave of boom in the bill payment landscape by largely stimulating the participant units. This blog post is aimed at analysing the key features, ambiguities and the potential cocerns that needs to be addressed by the Directions while highlighting the cascading effect the regulations would have on the technological advancements in the sector.
Key features of the Framework
The recent developments in the payments sector demand for a dynamic regulatory regime. The RBI has so far adopted a balanced approach in harmonizing the sectoral growth with the consumer needs through minimal regulatory intervention and self-regulatory mechanisms. The Directions, by regulating the primary players in the payment system, NPCI Bharat Bill Pay Limited (“NBBL”) and Bharat Bill Payment Operating Units (“BBPOUs”), aim to do the same by creating a level playing field in the payment ecosystem by allowing entry of new players while providing for enhanced consumer redressal mechanisms.
NBBL, is the authorized Bharat Bill Pay Central Unit (“BBPCU”) which operates the payment system in addition to setting industry standards and undertaking clearing and settlement functions. Whereas, BBPOUs are the system participants in BBPS which may function either as a Biller Operating Unit (“BOU”) or a Customer Operating Unit (“COU”) or both. A BOU onboards billers to BBPS while a COU provides customers the digital/physical interface through which the customers can access the billers in the payment system. The primary responsibility of BOUs as per the Directions is to ensure the regulatory compliance of the onboarding merchants in accordance with the guidelines as prescribed by the RBI or NBBL. On the other hand, COUs have to undertake the responsibility of providing for an inbuilt system for raising disputes in addition to ensuring consumer access to the billers. Moreover, the COUs must also take complete responsibility for the actions of agent institutions which are contracted for providing the interface services to the customers in the payment system.
Further, one of the key aspects of the Master Direction is the relaxation of regulatory requirements for the entry of non-bank payment aggregators (“PAs”) into the BBPS framework. Once a non-bank PA is authorized to operate as a PA under The Payment and Settlement Systems Act, 2007 or under the in-principle authorisation, additional licensing requirements for operating in the BBPS framework are done away with. However, an additional mandate is placed on the non-bank PAs to maintain escrow accounts with a Scheduled Commercial Bank exclusively for the purposes of BBPS transactions. The escrow accounts of the BOUs and COUs are to maintain the credit of funds collected from the customers, due to the biller, the credit/debit of disputed payments and the recovery of charges or commissions on the payment. In addition to the provisions provided in the directions, the management of the BBPS escrow account will be governed by the RBI guidelines on payment aggregators and gateways as applicable.
Finally, NBBL is required to establish a centralized dispute resolution framework as per RBI guidelines which will integrate all participating COUs and BOUs, allowing customers and billers to raise and resolve disputes effectively.
Analysis
RBI, through the Master Directions has introduced further regulatory mandates on an otherwise well-regulated payment system. Although the earlier guidelines provided for extant directions on the various aspects on the interoperability of BBPS, the new directions attempt to provide further clarity by simplifying and consolidating the existing RBI regulations into the BBPS framework.
In contrast to previous guidelines, the Directions have further streamlined the settlement and consumer grievance mechanism by integrating BBPOU and BBPCU into an end-to-end complaint management system. Moreover, BBPOUs functioning as COUs are required to establish an inbuilt system for raising disputes; however, no such mandate is provided for BOUs. This creates ambiguity regarding how the disputes would be resolved internally between billers and biller aggregators within BOUs before it is escalated to the regulator or the relevant authority. This lack of a mandated dispute resolution system for BOUs may result in inconsistencies in the services of the BBPS system, significantly impacting the participants and the costumers.
Moreover, as per the previous guidelines for the purposes of settlement, the transactions were categorized as ON-US and OFF-US transactions. The difference between an ON-US and OFF-US transaction is that, in the former the biller and the payment collection agent belong to the same BBPOU whereas in the latter they belong to different BBPOUs. The settlement in the ON-US transactions is carried out completely by the BBPOUs whereas OFF-US transactions are settled by the BBPCU. It is pertinent to note that there is no mention of this bifurcation or settlement mechanism in the current framework except for the mandate on COUs to take responsibility for the actions of their agent institutions. Though doing away with this bifurcation has simplified the management and settlement process in the payment system, it is imperative for both the regulator and the BBPCU to monitor the efficacy of such an overhaul in the long run for ensuring consumer protection and enhancing the interoperability of the payment system.
Further, one of the most important features of the revised guidelines is the step towards increasing participation in the BBPS ecosystem, which has been a consistent effort by the RBI in the recent years. The RBI in the past has taken steps like reducing net worth requirements, expanding biller categories etc. in furtherance of the same object. Under the current regime, doing away with the additional requirements for non-banking entities and extending the participation to various financial entities signifies a concerted effort by the regulator to foster greater inclusivity and innovation within the BBPS ecosystem.
This transition towards a more inclusive framework in the context of the expansive growth of the Fintech sector in India must be understood as RBI’s move towards embracing technological driven services in the financial sector. At the same time, the regulator has also attempted to address the potential challenges such developments might bring. Therefore, the directions have mandatedthe BBPCU to ensure that no funds in the payment system flow through Technological Service Providers (“TSPs”). The directions, thus restrict the role of TSPs within the payment system to the purpose of providing technological services to the participants in the payment system. By restricting the flow of funds through TSPs, RBI aims to mitigate the risk for unauthorized access, data breaches or financial frauds. Such a distinction between the services provided by BBPOUs and TSPs will ensure robust security measures and enhance the accountability of the participants in the BBPS ecosystem.
Conclusion
The RBI has so far adopted a proactive approach in regulating the financial sector, especiallyin the evolving landscape of digital payments.The BBPS system since its inception in 2017 has gone through significant changes and has emerged as a secure and reliable payment system for the consumers. However, the need for regulating the sector is heightened due to technological advancements and changes in consumer preferences. While the regulations adequately provide for centralised mechanisms for settlement and consumer grievance redressal, the effectiveness of the same remains uncertain in light of the growing threats of financial frauds in the digital payments sector. Thus, it is imperative for the RBI to oversee and monitor the new developments and bring about dynamic regulatory mechanisms that are flexible enough to adopt to these changes. While RBI’s attempt to engage stakeholders in the regulation and increase participation is a welcome move, the entry of new participants could also entail new concerns and challenges. Therefore, a sustained communication among the regulator, BBPCU, the participants and the costumers is essential for further enhancing the operability and efficacy of the BBPS ecosystem, particularly in the broader contextof India’s digital payments landscape.