Online Dispute Resolution In Digital Payments– An Attempt To Read Consumer Protection In Digital Payments Framework In India

[By Vanya Chhabra & Sadhvi Chhabra.]

Vanya is an associate at AZB & Partners, Delhi and Sadhvi is a student at National Law University, Jodhpur.

The blog post seeks to address the introduction of ODR by the RBI as the need of the hour on account of increased digitalization and growth in the digital payments ecosystem. It traces and attempts to capture the transition in approach to a consumer-friendly mode to deal with the disputes online considering conventionally the industry has seen onerous consumer litigation. The blog in detail explores the contours of RBI policy to address concerns related to failed transactions while using ODR in digital modes of payment. The blog also touches upon the challenges involved in the evolution of the RBI policy and how innovation may come to rescue dispute resolution with fintech solutions.

India is rapidly moving towards a digital economy. E-commerce has captured large segments of the Indian population making the online market space more complex and information rigorous due to the rising number of digital transactions. The RBI has shown quick adaptability to hold onto the speed of the steadfast moving financial technology with the introduction of online dispute resolution for digital payments. The increased digitisation has radically altered the relationship between the customer and the financial institution. This blog aims to analyse RBI’s attempt to introduce the online dispute resolution mechanism for the digital payments ecosystem in India.

Post-demonetization, the digital payments ecosystem saw a sharp acceleration and growing malleability towards online cash-less payments. The major contributors to this success and growth in digital payments are the flagship government initiatives inter alia Digital India, etc. Furthermore, in order to address the growing COVID- 19 concerns, digital payments appeared as one of the most promoted method of payment. Keeping in mind the increase in transactions, the questions of faster dispute redressal remained prominent and unanswered.

In the past, the banking industry adopted a hands-off approach while dealing with disputes that arose out of digital transactions. As a result, it was seen that in a plethora of cases, the realm of disputes had always been onerous with the burden of proof on the consumer to fight for their rights through the means of litigation. In order to address the rising concerns relating to digital transactions, the Reserve Bank of India (“RBI”) introduced a policy of “Online Dispute Resolution (ODR) for Digital Payments” vide its statement on developmental and regulatory policies dated August 6, 2020 (“Policy”), which aims to enhance and ease the digital payments framework in India. The purpose of introducing such a Policy with mandatory compliance for payment system operators is to encourage an easy and accessible online dispute settlement for cases arising out of digital transactions. The effort of addressing online disputes through the means of this  Policy is a welcome step to match the global outlook on FinTech policies. Furthermore, in order to accommodate the rapid digitisation of courts, Niti Aayog is also exploring avenues for advancing online dispute resolution in India.

The Policy is in consonance with the RBI’s mission to ensure that all payments and settlement systems operating in India are inter alia primarily safe, secure, efficient, and accessible. Through this Policy, the RBI seeks to use customer friendly online dispute resolution to address concerns related to failed transactions while using digital modes of payment like Net Banking or E-wallets or any other grievance as raised. The ease of dispute resolution even though dependant on the design and structuring of applications by the payments system operators, shall be a significant step to boost to digital payments ecosystem in India.

Online Dispute Resolution in Digital Payments

Online Dispute Resolution (“ODR”) could be simply defined as an online method of dispute resolution using the means of technology to facilitate the dispute resolution between parties. The various schools of thought bifurcate multiple dispute resolution techniques between involving absolute control over the process to reach an amicable solution (negotiation) and the parties being mere spectators to a process led by third parties in fiduciary relationships (arbitration).. ODR for digital payments would involve ‘technology-driven redressal mechanisms’ that are rule-based, transparent and involve minimum (or no) manual intervention to deal with the disputes in an effective manner within a specified timeline. In India, the payment systems are governed and regulated by The Payments and Settlement Systems Act, 2007 (“PSSA”).

Regulatory Regime of ‘Payment System’ Under The Payments and Settlement Systems Act, 2007

A ‘payment system’ under PSSA means a system that enables payment to be effected between a Payer and a Beneficiary. The essentials to qualify as a ‘payment system’ would involve performing three major functions – clearing, payments or settlement services or all of them; the systems enabling credit card operations, debit card operations, smart card operations, money transfer operations or similar operations (Section 2(1)(i), PSSA), while categorically excluding stock exchanges (Section 2(1)(i)  r/w Section 34, PSSA). The RBI is a statutory regulator of payment and settlement systems in India (Section 4 of PSSA), while the Board for Regulation and Supervision of Payment and Settlement Systems (“BRSPSS”), a sub-committee of the Central Board of the RBI, is the highest policy-making body on the payment and settlement systems.

Before the introduction of the Policy, the RBI had a fast- track and cost-free dispute resolution mechanism for complaints regarding digital transactions undertaken by customers of the system participants vide the As per Clause 9 of the Scheme, the complainant for redressal of any grievance must first approach the system participant concerned. “If the system participant does not reply within a period of one month after receipt of the complaint or rejects the complaint, or if the complainant is not satisfied with the reply given, the complainant can file the complaint with the Ombudsman for Digital Transactions within whose jurisdiction the branch or office of the system participant complained against would be located.”

As per the RBI, there has been ‘a concomitant increase’ in the number of disputes and grievances due to the steady rise in the number of digital transactions. Accordingly, the RBI has introduced the requirement for Payment System Operators (“PSO(s)”) and the Payment System Providers (“PSP(s)”) to introduce ODR Systems in a phased manner which aim to be technology-driven, transparent and customer-friendly systems for resolving customer disputes and grievances related to digital payments using “zero or minimal manual intervention”. In its nascent stage, the implementation of ODR shall be limited for failed transactions in the respective payment systems. On the basis of the experience gained out of implementation of the Policy, The ODR arrangements will be extended to other types of disputes and grievances.

The PSOs are required to implement an ODR system by the end of 2020. The RBI has laid down a framework for the ODR system for PSOs and its participants, the PSPs. The PSOs are required to provide access to a system to its participating members i.e. the PSPs. As per  Clause 3.2 of the Policy, “The PSOs and its PSPs are mandatorily required to provide the customers with access for lodging the disputes and grievances relating to failed transactions, irrespective of the transactions being on-us or off-us in nature.

Process of Online Dispute Resolution in Digital Payments

The customer for the purpose of lodging and tracking of disputes and grievances has been given various options through multiple channels. The PSPs and/or PSOs, the issuer who has a relationship with the customer, is required to provide a mechanism to link /access the ODR system. The PSOs are given the option of multiple channels through which the customers may be provided with web-based or paper-based complaint form, IVR, mobile application, call centre, SMS, through branches or offices, etc. lodging and tracking of disputes and grievances. The PSOs are required to provide one or more such channels to the customers for seeking dispute resolution. Further, an additional interesting yet extremely relevant requirement is for mobile phone-based systems like Unified Payments Interface (“UPI”) and third-party app providers (“TPAP(s)”) to provide customers with the facility to lodge disputes and grievances through the same mobile app used for making payments, which shall be integrated with the ODR system (Clause 5.2 of the Policy).

Process of lodging a complaint under the ODR system for a failed transaction:

  1. The process shall be simple and should require only necessary details.
  2. The ODR system must be automatically equipped to provide details of the failed transactions or grievance on the basis of the information provided by the customers.
  3. Customer upon lodging the dispute or details of the grievance shall be allocated a unique reference number by the ODR system.
  4. Customer shall have an option to track the status of the complaint using the allocated reference number.
  5. The PSOs shall provide adequate parameters for data confidentiality (Clause 5.2 of the Policy).

Problems Associated with Online Dispute Resolution in Digital Payments

There remains ambiguity for the interplay of responsibilities and obligations of the PSOs and PSPs including UPIs and TPAPs which may contractually be divided upon risk allocation. The RBI may have to clarify the procedural guidance for standardization of terminologies such as the permissible ‘necessary minimum details’ that may be required for lodging the dispute or grievance. Furthermore, even though financial inclusion has increased multifold but financial literacy remains critically low. Financial literacy remains a key component to determine the success of ODR in Digital Payments in India. It would be interesting to see the evolution of the innovative designs and applications to take care of the requirements of the FinTech and financial literacy issues in ODR system.

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