Digital Payment Modes and E-wallet
Introduction
Digital payment, as the name suggests, are done through digital or online form, with no exchange of cash. Such type of payment done by a payer to a payee through an online intermediary is called Electronic Payment (E-payment). The prerequisite of this process is that both the payer and the payee must have two things, a bank account and an online banking method and lastly a device from which they can make the payment. The payer and the payee both must be signatory to the medium of transmission they are using to facilitate the transaction. For example, If Ramesh wants to send 100rs on a purchase of a pastry from ABZ cake shop, before initiating UPI (Unified Payment Interface) he must make sure that the cake shop is having a mobile registered with any of the UPI service provider to debit his money.
While on the surface, it may take only a few clicks to pay electronically, the digital payments process has various intermediaries that work together to accomplish a successful transaction. Different type of Digital payment modes have different modus operandi of processing the payment and have different intermediaries.
Additionally, a report by the Internet and Mobile Association of India indicates that the Internet users in India is expected to reach the mark of 800 million by end of the year 2023. Drawing a parallel, the Indian government is expecting that this will lead to an increase in the number of users with electronic wallet in India, expecting it to reach 900 million by the end of 2025. This data reveals that how sacrosanct Digital Payment Modes and E-wallets are in the context of India and how they play a huge role in its Economy. The Indian government (Ministry of Finance) and Reserve Bank of India has released a list of different digital payment modes and they are as follows:
|
Serial No. |
Payment Modes |
|---|---|
| 1 | AEPS (Aadhar Enabled Payment System) |
|
2 |
BHIM Aadhar |
| 3 | BHIM UPI (Unified Payment Interface) |
| 4 | Closed Loop Wallet |
| 5 | Credit Card |
| 6 | Debit Card |
| 7 |
IMPS (Immediate Payment Service) |
| 8 | Internet Banking |
| 9 | Mobile Banking |
| 10 |
NACH (National Automated Clearing House) |
| 11 |
NEFT (National Electronic Funds Transfer) |
| 12 | NETC (National Electronic Toll Collection) |
| 13 | Others (Mobile Wallets, Bank Pre-paid cards, Point of Sale, Micro ATMs) |
| 14 | PPI (Pre-paid Payment Instruments) |
| 15 |
RTGS (Real Time Gross settlement) |
| 16 | USSD (Unstructured Supplementary Service Data) |
In this research piece, the author will be only looking at only digital payments which are relevant in recent times, that is Debit card, Credit card, UPI, Mobile and Internet Banking and Mobile Wallets.
laws surrounding digital payment modes
The primary law governing digital payment in India is the Payment and Settlement system Act, 2007 (PSS Act).
The RBI has also issued a number of regulations and guidelines under PSS act to govern digital payments in India, which include:
- Master Directions on Prepaid Payment Instruments (PPIs) – These regulations oversee the distribution and operation o f PPIs, such as mobile wallets and prepaid cards.
- Master Directions on Payment Aggregators and Payment Gateways – These regulations govern the issuance and operation of Pas, which are entities that facilitate digital payments between merchants and customers
- Master Direction on Card Network – These regulations govern the issuance and operation of card networks, such as Visa and Mastercard.
To begin with, all the above-mentioned notifications are very helpful in bringing the technology vis-à-vis law in consonance and create a safe environment for all types of digital payment methods. The PPI regulation governs Closed Loop Wallets, Mobile Wallets and Bank Pre-paid cards as is mentioned under serial number 4,13 and 14 of the above given charts of RBI.
Prepaid Instruments are used for loading certain amount of money in advance which can be used in future purchases without the need of credit or card. The only difference between a PPI instrument and debit card that PPIs are loaded with specific amount of money and cannot be overdrawn. Prepaid cards, wallets, cards, vouchers are some of the examples of PPIs. PPIs can be issued by banks and non-banks. PPIs can be issued by banks and non-banks, which includes companies incorporated in India and registered under companies act, but has to be compulsorily authorised by RBI.
The new direction of RBI states clearly that the PPI should have lower limit of 10,000rs and an upper limit of 1,20,000rs which has to be maintained otherwise attracting fine from the appropriate authority may be levied. Some other types of PPIs are Small PPIs which can be issued by banks and non-banks and can be used at a group of clearly identified merchant locations. Fund transfers or cash-withdrawals are not permitted in such PPIs. Another type of PPI is closed PPI which is again issued by banks and non-banks but can be used for only one recognised entity and cannot be used for payment or settlement of third-party services. Apart from these above-mentioned instruments, Gift PPIs and PPI-MITS are some others which are frequently used in digital payments.
The most salient feature of PPIs is that it is interoperable. interoperability is the technical compatibility that enables a payment system to be used in conjunction with other payment systems. Interoperability allows PPI Issuers, System Providers and System Participants in different systems to undertake, clear and settle payment transactions across systems without participating in multiple systems.
The second direction on Online Payment Gateways (OPGs) include regulation of UPI, Internet Banking, Mobile Banking, Mobile Wallets, Point of sale and Micro ATMS, Serial number 3,8,9 and 13 of the above-mentioned table.
This direction with effect from January 1, 2022 will allow no entities in card transaction or payment chain, other than card issuer and network, to store card data. Any previous data shall also be purged accordingly. Neither authorised payment aggregators (PAs) nor the merchants can store credentials of any card of the customers within their servers or database.
Before getting into technicalities of the direction lets understand what is the difference between payment aggregator and payment gateway. PAs provide single platform that connects the merchant to variety of payment gateways and payment providers. This gives the merchant to allow wide range of payment methods without having to manually integrate them. Payment gateways on the other hand are software applications that process online payment, they act as an intermediary between merchant and banks, encrypting customer data and transmitting it to bank for authorization.
From September 30th 2022, one will have to manually enter all the card details for every online payment. However, explicit approval will allow merchant authority to work with your bank and card network to provide you with the same seamless payment experience as earlier.
This measure has been taken in order to curb unauthorised transaction through the card. An alternate way of storing a data in a secured way is through tokenisation. Tokenisation means encryption of card data and not exactly storing the entire data in plain text. Tokenisation can be done by merchants offering goods and service or card networks like Visa or MasterCard.
In the recent Delhi high court Judgement, it was laid down that payment aggregators will fall under the Payment and settlements Act, 2007. Apart from the direction issued by RBI and updated frequently, the Payment and Settlements Act also somehow passively governs digital payments. As per this legislation every operation and commencement relating to payment system shall be done unless authorised by RBI. There is an exception to this rule that any other person willing to commence or operate a payment system needs to apply for authorization.
RBI after inquiry may refuse the authorisation or if after granting authorization it feels that the payment system operator has failed to comply with the act may revoke it. The RBI has been given entire discretion and power to determine standards for payment system. Every changes done by these payment system needs to be given to RBI because RBI has been given every power a civil court has in India and it can call the system operators for the objective of inspection of documents, access to information, physical inspection and audit.
Conclusion
COVID-19 has led to increase in digital payment, which in turn boosted the use of third-party apps operating as Payment aggregator which indirectly benefitted the economy and the consumer. Introduction of new payment system and various government initiatives to promote digital payments has led to considerable changes in the legal framework of digital payment. This entire mechanism has been introducing to benefit the people who can access the resources and the country’s economy.
To facilitate and maintain inclusivity government has come up with implementation of “e-RUPI” and Pradhan Mantri Jan Dhan Yojana which in turn helps in improving the effectiveness of Direct Benefit Transfer (DBT). Such legislations and policies of the government has led to creation of a very strong environment for growth of digital finance, which may lead us to achieving the dream of cashless India.
Existence of no uniform legislation for regulation of all form of digital payment modes is need of the hour because it would be very detrimental to the economy as well as the court to deal with issues pertaining to digital payment and clearly if digital payments are increasing disputes relating to it will also increase, to make people aware of their rights relating to digital payment and to avoid any crime which may not be explicitly discussed by the courts of law will need a well-defined solid law.
The existing legislation like the Draft Digital Personal Data Protection Bill, 2022 seeks to govern the collection, storage, and use of personal data by companies involved in digital payments. The National Cyber Security Policy, 2013 which aims to defend key information infrastructure from cyber threats has also proved inefficient as despite the existence of these two legislations cases of data breach, Phishing, identity theft continues to be a problem in the context of digital payment.
With India moving towards a more digital economy, digital payments have a bright future ahead of them, if they implement a well-defined law relating to digital payment modes and with the industry expected to expand quickly. The adoption of new technologies like as e-RUPI and UPI, along with the growing use of smartphones and internet access, will further encourage the growth of digital payments. In the upcoming years, millions of Indians should benefit from increased simplicity and financial inclusion as the shift to a cashless economy picks up momentum.