Reserve Bank of India

The biggest challenge emerging from RBI’s Payments Vision 2025 is the push to facilitate domestic processing of payments transactions, as well as the move to ISO 20022 standards.

The fast-growing Indian payments market is set to face sweeping regulatory change, following the publication of the Reserve Bank of India’s (RBI’s) ‘Payments Vision 2025’ earlier this month. The document, which functions as the central bank’s roadmap for payment system development, outlines a number of key proposals that could impact banks, fintechs and other payment service operators in the world’s second most populous country. This includes a potential requirement to execute end-to-end processing for domestic payments, as well as a migration to ISO 20022 standards over the coming years.

In most cases, these changes will herald needed improvements to a payments landscape that is developing at break-neck pace. The value of digital payments in India is expected to increase more than threefold over the next four years, from $3tn today to $10tn by 2026, according to research published by consultancy Boston Consulting Group and PhonePe, an Indian payments company. If this scenario happens, digital transactions will account for more than two-thirds of all payments in the country.

The pace of this growth is being driven by established payment giants, big tech groups, as well as newer and more disruptive fintechs. As a result, Payments Vision 2025 also incorporates a number of proposals to harmonise the regulatory playing field for these market actors. This includes placing large technology providers, as well as smaller financial technology operators, within the traditional regulatory perimeter for payments firms.

“I think it’s a positive development. Regulatory streamlining and the development of a regulatory baseline for all players in the payments space will ultimately improve the market. The regulator is very forward-looking, because it is setting the stage today for a future in which the payments market will be very different,” says Mihir Gandhi, payments transformation leader at PwC India.

Meanwhile, the RBI is also considering mandating the domestic processing of payment transactions within India’s borders. This will, for the most part, hit international card networks that were granted an exemption in 2018 allowing them to process payment data overseas, while still being required to store payment data in India. As a result, the proposal in Payments Vision 2025 aims to close this loophole and set up end-to-end processing centres in the country, contributing to a probable increase in operating costs for these groups.

“I would say that the biggest challenge coming out of Payments Vision 2025 is the push to facilitate domestic processing of payments transactions and the ring-fencing of domestic payments. I think that's going to be one of the biggest issues for payments groups to look out for,” says Sampath Sharma Nariyanuri, fintech analyst at S&P Global Market Intelligence.

The regulator is also exploring the migration of RBI-operated payment system messages to ISO 20022 standards. Among other implications, this could have a material impact on Indian banks. According to research from PwC, some lenders will have to consider the use of message translators if they do not change or upgrade their in-house systems in tandem.

This proposal follows a sanction handed to HDFC Bank, one of the largest lenders in the country, in December 2020 by the RBI for outages affecting its mobile banking, internet banking and payments services.

“Indian banks have been somewhat slow in terms of modernising their payment systems. As digital payment volumes increase, will the banking system be able to cope? The RBI has set a precedent in recent times by imposing sanctions on certain banks for payment network outages. So, whether or not ISO 20022 migration will raise the bar and force the banks to modernise their systems remains to be seen,” says Mr Nariyanuri.

Beyond these measures, the Payments Vision 2025 roadmap also covers other proposals that focus on accelerating the internationalisation of India’s payments systems, as well as the probable steps forward for the country’s mooted central bank digital currency (CBDC). “The way a CBDC could be rolled out is through specific use cases. This will involve targeted, specific payments such as subsidy payments for Indian citizens. But the technology, the standards, the protocols and ecosystem layers will take time to develop,” says Mr Gandhi.

Taken together, Payments Vision 2025 represents an ambitious plan to position Indian payments for the next stage of the country’s economic growth story.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter