Prelude:
As India moves steadily towards financial inclusion and a cashless economy, the RBI issued the Reserve Bank of India (Bharat Bill Payment System) Directions, 2024 (“BBPS Directions”)[1] on February 29, 2024, exercising its powers conferred under the Payment and Settlement Systems Act, 2007 (“PSS Act”). These Directions are a pivotal initiative designed to streamline and centralize bill payments across the country. The Bharat Bill Payment System (“BBPS”), launched by the National Payment Corporation of India (“NPCI”), integrates a multitude of bill payment services into a single, cohesive platform. These services include utility bill payments (electricity, water, gas, telephone), DTH, cable TV recharges, mobile prepaid and postpaid payments, loan repayments, credit card repayments, mutual fund payments, schools and universities fees, municipal taxes, subscriptions and club membership payments.
Previously, bill payment systems in India were fragmented across various platforms and service providers, leading to inefficiencies such as inconsistent processing timelines and fragmented customer services, and security concerns related to inconsistent standards of protection against fraud and unauthorized transactions. Recognizing the critical role of BBPS in India’s digital payment ecosystem, the Reserve Bank of India (“RBI”) introduced the BBPS Directions, which came into effect from 01 July 2024. These BBPS Directions are part of broader efforts to refine and strengthen the operational framework of BBPS and uniformly address the abovementioned challenges. In this article, we aim to explore the impact of BBPS Directions on India’s digital payment landscape.
The RBI’s New Mandate:
The introduction of BBPS Directions represents a strategic measure to overhaul credit card bill payments in India. The BBPS Directions outline the new compliance requirements and the operational framework for the BBPS. According to the BBPS Directions, BBPS participants, including banks and non-bank entities, are required to integrate with the BBPS infrastructure to ensure seamless processing of credit card bill payments.
The RBI’s new mandate includes significant measures such as the compulsory inclusion of credit card bill payment within the BBPS and the introduction of stringent compliance requirement for payment aggregators. According to the BBPS Directions, any entity, other than a biller (i.e., for example a credit card issuer or a telecom service provider etc.), which operates a system for bill payments outside the BBPS is classified as a ‘payment system’ under section 2(1)(i) of the PSS Act 2007.[2] This classification requires such entities to obtain authorization as per Chapter III of the PSS Act as “payment systems”.[3] This mandate combines licensing requirements and mandatory integration, ensuring that the third party payment service providers and aggregators either integrate with BBPS for processing credit card bill payment or obtain authorization to operate independently. The objective is to standardize, bill payments, enhance security, and ensure comprehensive regulatory oversight within India’s digital payment ecosystem.
The BBPS Directions consolidate various legislative measures previously put forth by the RBI to strengthen the digital payment landscape. These include the guidelines on the regulation of Payment Aggregators and Payment Gateways (March 2020)[4], which set forth due diligence requirements, the Online Dispute Resolution (ODR) System for the digital payment landscape (August 2020)[5], which established protocols for managing and resolving payment disputes for various bill payment operations and the harmonization of Turn Around Time (TAT) and Customer Compensation for Failed Transactions (September 2019)[6] which introduced standardized timelines and a compensation regime for addressing failed transactions.
Rationale Behind the Mandate:
The RBI’s mandate is driven by the following objectives: –
1. Enhancing security: By routing the credit card bill payments through the BBPS instead of through unregulated entities (i.e., entities not authorized as a ‘payment system’ by the RBI), the RBI aims to create a more secure payment environment for all such credit card transactions. The BBPS platform is designed with robust security measures, such as having messaging format structure and standards, techno-functional guidelines, and the data security standard guidelines to minimize the risk of breaches and protect against fraud and unauthorized transactions. Centralizing bill payments under BBPS ensures that these stringent security protocols are consistently applied across all transactions, thereby enhancing consumer confidence in digital systems.
One of the key objectives of the BBPS Directions is to uniformly apply security standards across all the participants, including the customer operating units and biller operating units together categorized as Bharat Bill Payment Operating Unit (BBPOU’s) and agent institutions. This uniformity ensures that all the entities within the BBPS framework adhere to the same level of security protocol, thus minimizing vulnerabilities and inconsistencies that could potentially be exploited by malicious actors. Additionally, the central unit, NPCI Bharat BillPay Ltd (NBBL), oversees the entire BBPS ecosystem. This centralization facilitates continuous monitoring and real time supervision of transactions, which is crucial for the early detection of the fraudulent activities and the swift implementation of the corrective actions. Moreover, this centralized oversight simplifies auditing and compliance checks, ensuring that all participants adhere strictly to regulatory requirements.
BBPS Directions also prioritize consumer protection and provides a robust framework for complaint management and dispute resolution, making BBPS a reliable platform for digital payments in India. This framework includes a centralized system that enable consumers to easily raise and resolve issues related to the transactions. The systematic handling of disputes, coupled with the use of a BBPS reference number of each transaction, ensures both traceability and accountability.
2. Better oversight on credit card bill payments: The RBI aims to enhance its oversight of credit card bill payments by centralizing them through BBPS. Currently, credit card bill payment transactions occur on diverse billing systems and varying compliance standards among banks and non-banks entities which follow diverse security protocols and compliance standards. This lack of uniformity in security and compliance protocols create a systemic risk. This fragmentation can lead to gaps in monitoring, delayed identification of fraudulent activities, and inconsistencies in the application of security protocols, ultimately compromising the stability and integrity of the financial system.
The BBPS system addresses these gaps by providing a centralized and standardized platform for processing credit card bill payments. This centralization facilitates improved visibility into transaction volumes, payment patterns, and potential risks. With the NBBL overseeing the entire BBPS ecosystem, the RBI can ensure the continuous and real time monitoring of all transactions. This centralized oversight enables the early detection of anomalies and fraudulent activities, allowing for swift corrective actions to mitigate risks.
3. Lowering Integration Costs: The BBPS platform provides a single integration point for all bill payments, including credit card bills. For banks and payment service providers, this reduces the need for multiple integrations with various third-party applications. By streamlining the integration process, the BBPS lowers the operational costs and simplifies the technical requirement for participants. This unified approach also facilitates easier compliance with regulatory standards further reducing the administrative burden on financial institutions.
Impact:
The BBPS Directions stipulate that, all credit card bill payments conducted via third-parties must be routed through the BBPS. This requirement may negatively affect customers’ ability to use popular third-party apps for credit card payments services, as these apps offer payment settlement channels (“PS Channels”) for a significant number of banks, including major credit card issuers like HDFC Bank and Axis Bank. These banks have not integrated with the BBPS platform and rely on such PS Channels service providers for credit card bill payments.[7]
The mandate by the BBPS Directions requiring entities offering PS Channel services to obtain appropriate authorization as a ‘payment system’ may result in customers of these PS Channel service providers temporarily losing access to their preferred bill payment apps. This situation could lead to inconvenience for users who rely on these apps for their bill payments, rewards, platform offers and a seamless transaction experience. Additionally, many banks, including major card issuers like Axis Bank, are not yet active on the BBPS platform. Of the 34 banks authorized to issue the credit cards, 22 have not yet adopted the BBPS system, resulting in their customers still placing reliance on these third party apps for bill payments.[8]
Factors Delaying Bank’s Integration with BBPS:
Integration with BBPS requires significant updates to the existing banking system, a process that is often complex and time consuming. Banks must overhaul their IT infrastructure to ensure compatibility with BBPS protocols, which involves substantial investment in both technology and manpower. Many banks may lack the necessary resources or technical capabilities to undertake this integration efficiently, leading to delays.[9]
Additionally, banks have developed a strong ecosystem for third party integrations for services such as payments processing, data analytics and customer relationship management. Integrating with BBPS may be perceived as an additional investment without significant value-added benefits, potentially disrupting existing processes and customer experiences. These stringent compliance and regulatory requirements imposed by the BBPS Directions necessitates significant changes to operational frameworks, particularly for institutions with in-house systems that facilitate their infrastructure for such transactions.[10] Moreover, there are strategic concerns; integrating with BBPS could risk customer migration to BBPS, which is accessible to other banks and payment service providers, including fin-techs. Such migration could impact banks’ control over their customers and the resulting competitive edge.[11]
Conclusion
While the regulator’s intent is to unify and secure the operational aspects of transactions through the mandate of BBPS as the central bill payment system, the directions also pose challenges to credit card issuers, credit card users and fintech companies that facilitate credit card bill payment However, it is crucial to balance these concerns with the potential benefits of enhanced security, such as increased consumer protection and trust. Striking a balance between maintaining robust security and fostering an environment conducive to innovation is essential for the continued development of the digital payment ecosystem. Ultimately, ongoing dialogue and the implementation of these BBPS Directions between regulators and industry stakeholders will be key to achieving this balance.
This article was first published in Lexology.