Experts welcome RBI's call for more payment companies

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If RBI has its way, you could soon see new payment companies enter the market. The regulator has already given an indication to this effect during its mid term review on Wednesday. According to the banking regulator, there is a serious concentration of risk in the payment industry and that is why more payment companies are being encouraged to come in. The regulator will come out with a policy paper on the subject by end of September.

"With the maturing of the retail payments market, it is important that the concentration risk in retail payment systems is minimised from a financial stability perspective. The Reserve Bank plans to encourage more players to participate in and promote pan-India payment platforms so as to give a fillip to innovation and competition in the sector. A policy paper in this regard will be put out for public consultation by September 30, 2018,” said RBI in its review.

The concentration risk is primarily on account of banks dominating the digital payments market. According to various reports, out of the $250 billion digital payment transactions done monthly, 99 per cent are done through banks, only 1 per cent is done through digital wallets and other sources.

“It is fundamentally detrimental to customer's interests as lot of banks are not offering digital payment services very aggressively. We need much simpler transaction formalities to ensure deeper penetration,” says Naveen Surya, chairman of the Payments Council of India

Surya referred to the sachet model of FMCG which helped them reach masses. He says that net new additions of digital payment consumers has not been happening at a satisfactory rate. It has been growing at just about 25-30 per cent because most of the consumers undertaking digital transactions are the same between a couple of players. That too they are being lured by discounts and freebies.

An innovative low cost model which can penetrate tier 2 and tier 3 towns is what experts are essentially talking about.

Shailendra Naidu, founder, Obopay, gave the example of Safaricom which has dominated the payment space in Kenya and is now difficult for regulators to manage. "Leaving the market to one player or one category of players in our case banks, is always risky. I think the government is looking at payment companies at every level for different category of customers, like we have banks today,” he said.

According to some estimates, the transaction value of digital payments in India currently stands at an aggregate of $200 billion, of which mobile is still at just $10 billion in financial year 2018. The total digital payment market in India is expected to grow to $1 trillion by FY23.

“The cost of reaching out to smaller towns has to come down, which will then encourage small ticket transactions. And of course there needs to be lot of handholding and awareness for people to adapt it,” says Amit Kapoor, founder of Airpay.