Consumer Protection and Payment Wallets: A Case for Tech Based Intervention

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 From being a heavily cash-based economy, India is witnessing a steady growth in digital payments. The Reserve Bank of India (RBI) notes that the share of electronic transactions in the total volume of retail payments increased from 88.9% in 2016-17 to 92.6% in 2017-18 with a corresponding reduction in the share of paper-based clearing instruments from 11.1% in 2016-17 to 7.4% in 2017-18. One of the popular modes of electronic payments is prepaid payment instrument (PPI) / payment wallet. The share of transactions carried through such PPIs in the total volume of retail payment transactions increased from 18.04% in 2016-17 to 8 21.94% in 2017-18.

 While the development of technological innovations has enabled businesses to provide such innovative products / services to consumers and also further the cause of financial inclusion, they also create new risks for the financial systems, particularly for vulnerable consumers such as the low-income groups, that are often the beneficiaries of financial inclusion schemes.

 In light of these developments, it is critical for policy makers to assess whether current regulatory / supervisory approach for regulating the ever-evolving payments sector is adequate. Just as emerging technologies are enabling the evolution of FinTech, financial sector regulators in many jurisdictions are leveraging technological innovations to increase the efficiency of their supervisory approaches particularly in automated data collection and data analytics.

 Against this background, this Concept Paper explores the possibilities of integrating technological solutions in RBI’s supervisory framework for PPIs with a view to enable the regulator to have access to real-time or near-real time access to consumer complaints data of PPIs, which can then be further used for data analysis. Broadly, this Concept Paper presents two alternatives for the consideration of the regulator: (a) direct access to consumer complaints data from the systems of PPI issuers on a real-time or near real-time basis; or (b) setting up a centralised online grievance redressal platform by RBI for accepting consumer complaints. Timely access to consumer complaints data of PPIs can assist RBI in identifying potential risks. This is in contrast to the existing mechanism that relies on approaches based on past data and onsite inspections that may often result in delayed supervisory action. Further, 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. This is crucial in promoting the cause of financial inclusion. Needless to say, there are several considerations that have to be considered before adopting any approach, including conducting a technical feasibility and cost-benefit analysis.

 While RBI has been proactive in taking steps to promote consumer protection in the digital payments industry, we hope that this Concept Paper will help in sharpening such interventions further.

Click here to access the report on Consumer Protection and Payment Wallets