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Retail Payment System: Evolution and Way Forward

This Article based upon the speech given by Shri B. P. Kanungo, Deputy Governor, Reserve Bank of India ( Titled: Excellence in Payments). Here he talks about the evolution of Retail payment system in India, its achievement, challenges and way forward.

Earlier Reserve bank of India was responsible for all the retail transaction. For example earlier the entire cross-bank ATM transaction is handled by RBI. Then in 2005-08 for better efficiency RBI envisaged Retail Payment Systems should be managed under new institutional structure which should be owned by banks and Financial Institutions.

Finally in Dec, 2008 NPCI was set up. Objective to have a single organization across payment services is to provide swift, convenient, anytime-anywhere payment services and providing switching among services.

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Journey of Retail Payment System

Following is the journey of retail payment in India.

1. Major Payments through Cheque till 90s and it is being handle through Cheque Clearing House.

2. Started to Mechanisation of the clearing houses in 80s

  • Introduction of MICR technology for cheque processing
  • Considered as First steps toward computerization and breeding ground for digitisation of payments.

3. Interoperable ATMs using National Financial Switch.

  • ATM usage now very much prevalent not only in metropolitan centres, but in Tier 3, 4 and 5 cities
  • Emergence White label ATMs
  • White label ATMs


  • India is among a few countries where cheque settlement done on a T+1 basis.
  • UPI for retail payments.
  • Wide Choice of payment System that through reasonable rate.

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Features required for Excellence in Retail Payments


  • Characteristics
    • have to be available on demand
    • at all times -> 24 x 7
  • Challenges
    • bottleneck is in terms of digital connectivity
    • Many banking institutions are not yet part of retail platforms (NEFT, IMPS and NACH) E.g. large number of RRBs, rural cooperative banks and district central cooperative banks


  • Retail payment system to be cost effective and as per the expectations





Way Forward

How good is payment ecosystem in an economy can-be checked through following parameters

Performance Assessment

Product should be phased out if its utility is over. For example for cheque handling MICR is replaced by CTS technology. Also it should be checked there can be inter-operability of system to harness their true potential. As was done through BHIM App.

How strong is Customer Grievance Redressal Mechanism and how much people aware of it

There is lack of consumer awareness not only about payment options/features, but also about the grievance redressal mechanisms. And this unawareness is not limited to village/ Tier-3,4 cities but spread to metropolitan cities and even to some of the bankers.

A redressal mechanism is required for complaints in the digital space which is not as robust as in case for redressing banking-related customer complaints


Higher competition will lead to more innovation which will make the payment system more efficient and effective. For competition and innovation in payment system RBI has allowed non-banks into the payment ecosystem like non-banks are allowed to issue PPIs, establish while label ATMs,

Road map for next 3-4 years

1. Robust data collection, big data analysis and analytics framework for creating benchmarks.

2. Platforms for industry wide sharing of fraud data.

3. Need for Self-Regulatory Organisations amongst various industry sectors

4. Security standards for mobile payments, including Internet of Things’ devices and security aspects of social networks based payments.

5. Leveraging block chain or distributed ledger technology.

6. Encouraging contact less payments, including through QR code, organisation.

7. Innovation through regulatory sandbox.

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