In a move that could make the merchant payment ecosystem more agile and efficient, the Reserve Bank of India has given the go-ahead to NPCI Bharat Bill Payment Ltd. for the implementation of an interoperable payments system for internet banking transactions.

“We expect the launch of this interoperable payment system for internet banking during the current calendar year,” said RBI Governor Shaktikanta Das at the Digital Payments Awareness Week celebrations.

Settlement risks

Acknowledging that internet banking is one of the oldest modes for online merchant payment transactions and the preferred channel for payments like income tax, insurance premiums, mutual fund payments, e-commerce, etc., Das said that presently, due to a lack of a payment system and a set of rules for these transactions, “there are delays in actual receipt of payments by merchants and settlement risks.” This can be mitigated by introducing interoperability in internet banking.

According to the current mechanism, banks are required to separately integrate with each payment aggregator (PA) of different online merchants. Therefore, if a customer wants to make payment from her/his bank account to a certain merchant, the merchant’s PA and the customer’s bank must have an arrangement. Given the multiple PAs, each PA needs to be integrated with each of the banks. Also, due to the lack of a payment system and a set of rules for these transactions, there are delays in the actual receipt of payments by merchants, which poses settlement risks in the process. Introducing inoperability would ensure that banks are automatically integrated with payment aggregators (PAs) for internet banking.

Digital payments growth

India accounts for nearly 46 per cent of the world’s digital transactions. Retail digital payments in India have grown from 162 crore transactions in FY13 to over 14,726 crore transactions in 2023-24, until February 2024. This is an almost 90-fold increase in 12 years. “The extraordinary growth in digital payments is also evident in the Reserve Bank’s Digital Payment Index, which has witnessed a four-fold rise in the last five years,” the governor said while adding that “the flagship of our payment systems, the ‘UPI’, has become the most talked about fast payment system not only in India but across the world”. Calling it the biggest contributor to the growth of digital payments in India, the share of UPI in digital payments reached close to 80 per cent in 2023.