Consumer Protection and Payment Wallets – A Case for Tech-based Intervention | The Oxford Business Law Blog

Op-Eds by Corporate and Financial · April 8, 2019
Author(s): Debanshu Mukherjee, Shehnaz Ahmed and Param Pandya

Historically, India has always been a heavily cash-dependent economy. However, in the recent past, it is witnessing a steady growth in the volume and value of digital financial transactions, including those facilitated through pre-paid payment instruments (PPIs) or payment wallets. The Annual Report (2017-18) of the Reserve Bank of India (RBI) (India’s central bank and regulator of PPIs) notes that the share of PPI transactions in the total volume of retail payment transactions increased from 18.04% in 2016-17 to 21.94% in 2017-18. As the PPI sector grows in size, depth and complexity, it also exposes its consumers to risks such as fraud, data breaches, and unauthorised transactions. These risks are even more critical in the context of low-income and financially vulnerable consumers who are increasingly using PPIs for their day-to-day financial transactions. Such consumers are typically new to both formal finance and technology. Financial losses incurred on account of these risks are likely to have graver consequences for them in comparison to others. Therefore, for India’s PPI industry to meet the goals of financial inclusion, it is imperative that the regulation of the industry is complemented by an effective consumer protection framework that is geared to protect the most vulnerable consumers.

A review of the existing regulatory framework governing PPIs in India underscores the following limitations:

The RBI does not have access to real-time or near real-time access to consumer complaints data pertaining to PPIs. Rather, PPI issuers periodically file such data through a quarterly filing system with the RBI. Further, the reporting format for the filings constrains the granularity of data that can be submitted, limiting the insights that may be gathered from such filings.
While PPI issuers are required to have a consumer grievance redressal policy with such features as stipulated by the RBI, a review of some such policies (for both bank and non-bank PPI issuers) indicates that the redressal mechanisms are cumbersome and involve a three or four tier procedure with varying timelines for resolution (between the range of 2 to 60 days for the sample policies reviewed by us).
In January this year, the RBI set up a dedicated ombudsman to look into consumer complaints arising out of digital transactions. However, one can approach the ombudsman only after exhausting the internal grievance redressal process at the level of the concerned PPI issuer, adding another layer to an already long-winded process.
In order to keep pace with the innovations in the financial sector, policymakers in India need to take a close look at the adequacy of the existing supervisory approach for meeting the goals of financial regulation. While the RBI does rely on technology-driven processes for collecting and analysing information from the banks under its regulation, it can do a lot more in respect of other financial sector entities, especially PPIs. We have recently released a Concept Paper, which makes a case for tech-based interventions for improving the robustness of the consumer protection framework for PPIs in India. The paper discusses the following approaches:

Approach A: The RBI has mandated bank and non-bank PPI issuers to have a direct link for lodging complaints on the mobile application or home page of their website. Building on this mandate, this approach proposes that through an application programming interface, the RBI could obtain automated real-time access to consumer complaints data registered with the PPI issuer from its systems and track the real-time status of complaints. In implementing such an approach, issues pertaining to informational privacy (in case there is any access to personal information of consumers), security safeguards and cost of compliance for PPI issuers, will also need to be considered.

Approach B: The RBI may consider setting up a centralised online platform (or an application) enabling consumers to file complaints directly that may then be routed to the concerned PPI issuer. Institutional capacity of the RBI to operate such a system should be assessed before adopting this option. Further, access to consumer complaints data under this approach may be limited as compared to Approach A since some consumers may directly approach the grievance redressal mechanism operated by the PPI issuer.

A tech-enabled consumer grievance redressal mechanism will provide the RBI with a real-time or near real-time access to consumer complaints data. This, coupled with advanced data analytics on complaints data, will enable the RBI to draw relevant insights pertaining to operations of the PPIs, identify trends and potential consumer risks. This is relevant to promote targeted actions and identify regulatory gaps. Further, the RBI’s direct oversight over the redressal process is likely to promote accountability among PPI issuers for discharging their consumer protection mandate efficiently and inspire confidence of consumers in the process. As PPI issuers internalise the implications of such direct oversight, they are likely to improve the quality of their services and do their best to minimize instances giving rise to consumer complaints. This is also likely to reduce the need for ex-post enforcement actions against PPIs and reduce RBI’s enforcement costs in the long-run. A tech-enabled oversight mechanism for redressal of consumer complaints can thus go a long way in promoting the cause of financial inclusion in India.

Debanshu Mukherjee heads the Corporate Law and Financial Regulation vertical at the Vidhi Centre for Legal Policy, a New Delhi based independent think-tank.

Shehnaz Ahmed is a Senior Resident Fellow at the Vidhi Centre for Legal Policy.

Param Pandya is a Research Fellow at the Vidhi Centre for Legal Policy.

Originally published – https://www.law.ox.ac.uk/business-law-blog/blog/2019/04/consumer-protection-and-payment-wallets-case-tech-based-intervention


About Debanshu Mukherjee:

Debanshu is part of the founding team at Vidhi and leads its Corporate Law and Financial Regulation vertical. He graduated from the Hidayatullah National Law University and completed his graduate studies at Harvard University and the University of Oxford. He attended Harvard Law School as a Fulbright- Nehru Fellow where he was awarded the Irving Oberman Memorial Writing Prize in Bankruptcy and the Dean's Scholar Prize in Corporations. He has advised the Ministry of Finance, the Ministry of Corporate Affairs, the RBI and the IBBI on projects relating to bankruptcy, corporate law, and financial regulation. He was previously a lawyer with AZB & Partners. Link to full bio


About Shehnaz Ahmed:

Shehnaz is a Senior Resident Fellow with the Corporate Law and Financial Regulation vertical. Her areas of interest include the intersection of law and digital economy and business and human rights. At Vidhi, she has worked with various Ministries/Departments and a multilateral institution on various projects involving research and drafting support on areas diverse areas including financial resolution, digital economy (including payment systems law), business and human rights and competition law. Shehnaz graduated from RML National Law University in 2011. She has authored independent projects on tech-based interventions for regulating payment wallets, blueprint of a National Health Insurance Law and reforms for competition law. Prior to joining Vidhi, she headed a law firm (Zeta Law Chambers) co-founded by her, the Financial Regulatory Practice at Cyril Amarchand Mangaldas, Mumbai and the Dispute Resolution team at J. Sagar Associates. She has written for publications such as Oxford Business Law Blog, Financial Express, Firstpost and Business Standard.


About Param Pandya:

Param is a Research Fellow in the Corporate Law and Financial Regulation vertical. Prior to joining Vidhi, he worked in the General Corporate team at Cyril Amarchand Mangaldas, Mumbai (CAM), a leading law firm. His areas of interest include banking and corporate governance. He graduated with a B.Com. (LL.B.) (Hons.) from the Gujarat National Law University, Gandhinagar in 2015.