RBI Payment Infrastructure Development Fund can encourage digital payments all over India, leading to growth in economic activity.
The Electronic Payments ecosystem in India is growing steadily in major cities and urban areas. Over the years, the payments ecosystem has evolved to include a wide range of options. These can be cash, bank accounts, digital wallets, cards, and mobile-based or API-based payments systems, such as digital payments through InstantPay neo bank.
Low penetration of payment systems in smaller cities and rural areas
The cost of merchant acquisition and merchant terminalisation for acquirers is high. The number of electronic payments in smaller cities and far-flung rural areas is relatively low. Hence, the return on investment for acquirers in these centres is often negative. This has been discouraging acquirers from setting up Point Of Sale (PoS) infrastructure in these centres.
Hence, at present, the penetration of electronic payment systems in smaller cities and remote rural areas is low.
RBI Payments Infrastructure Development Fund (PIDF)
The Reserve Bank of India (RBI) has recently announced the setting up of an ₹500 crore RBI Payments Infrastructure Development Fund (PIDF). It will encourage acquirers to deploy Points of Sale (PoS) infrastructure (both physical and digital modes) in tier-3 to tier-6 centres and northeastern states.
The tier classification of RBI is as per population, with metropolitan areas and big cities falling in the tier-1 and tier-2 categories. In contrast, the tier-3 to tier-6 classified cities are the ones with decreasingly lower populations.
Partnership with private players
RBI will make an initial contribution of ₹250 crores. This amount will be matched equally with a similar ₹250 crores contribution made by the card-issuing banks, card networks, payment network and other public and private players involved in the countries’ payment ecosystem.
The RBI Payments Infrastructure Development Fund will also receive recurring contributions to cover operational expenses from card-issuing banks and card networks.
The RBI will also contribute to yearly shortfalls, if necessary. The RBI Payments Infrastructure Development Fund will be governed through an advisory council, and it will be managed and administered by the RBI.
How can RBI funding help neo banks?
Right from opening accounts to deposits, withdrawals, transfers, and investments, everything is a digital transaction in a neo bank.
Electronic and mobile-based payments are the foundations on which the whole concept of neo banking stands. Indeed, the flourishing payment ecosystem in the big cities and urban areas across India has been instrumental in the evolution of neo banking solutions, such as Instantpay neo banking.
The RBI fund and neo banks’ growth go hand in hand when it comes to penetration in the smaller cities and distant rural areas. The RBI Payments Infrastructure Development Fund will encourage greater penetration of electronic payment services like Instantpay neo banking all over India, along with more and more digital payments happening through InstantPay neo bank.
The RBI Payments Infrastructure Development Fund will also increase penetration in the northeastern states.
We, at InstantPay, are applauding the setting up of RBI Payment Infrastructure Development Fund. It is a hugely positive development for digital payments through InstantPay neo bank.