Govt moots to relax two factor authentication for card payments among other suggestions

The department of economic affairs (DEA) has come out with a number of guidelines for increasing the adoption of digital payments. In a note circulated with industry body IAMAI, the DEA issued a number of short and medium term recommendations for increasing digital payments and their acceptance.

In February, the ministry of finance removed surcharge and service tax on digital payments to boost adoption and also as a means to curb usage of cash. Here are some of the suggestions added in the note:

Short term suggestions

Promotion of card and digital payments in government

– Government departments, organizations, central public sector undertakings and anchor networks shall take steps to:

(a) withdraw convenience fee/service charge/surcharge on customers who prefer to make card/ digital payments for essential commodities, utility service providers, petrol pumps, gas agencies, railway tickets /IRCTC, tax department, museums, monuments etc.

(b) take appropriate steps to bear MDR cost like other merchants; and (c) build acceptance infrastructure (POS/ Mobile POS terminals) for card/ digital payments at all collection centres.

– The ministry of road transport shall facilitate the use of existing open-loop systems issued by a bank for multi-purpose use, including for making transit payments with a dedicated application. ( A huge positive)

Measures for wider adoption

– The department of financial services (DFS) and the RBI shall take steps to rationalize Merchant Discount Rate (MDR) on Card transactions and formulate a differentiated MDR framework for some key transaction segments, such as utility payments and railway ticketing by examining the matter holistically in consultation with the stakeholders. This was also part of the finance ministry’s suggestions last year.

– The DFS and RBI shall relax Two Factor Authentication for both card present and card not present transactions below a certain specified amount. DFS/RBI shall work out a multi tired authentication framework for low, medium and high value transactions.

– The department of revenue shall take steps to remove double taxation, if any, on service tax currently paid on MDR by the acquiring bank and on interchange fee by the issuing bank.

– The department of revenue and the DFS shall mandate payments beyond a prescribed threshold only in card/ digital/cashless mode.

Creating acceptance network

–  Department of Financial Services and  RBI shall amend and simplify the Merchant Acquisition guidelines to include Unique Identification Number or other identity based eKYC for merchants.

– The possibility of creating an acceptance or Financial Inclusion Fund for the purpose of improving the ratio of POS terminals and mobile POS terminals to the number of cards issued.

– The DFS and RBI  shall re-examine requirements KYC norms and include Unique Identification Number or other proof of identity.

Mobile banking and payment channels

– The Department of Telecommunications shall take appropriate steps for rationalization and reduction of USSD Charges and the feasibility of its being charged only on successful transactions.

– DOT, DFS and the RBI shall make a provision for a unified USSD platform which can support transactions across all payment mechanisms.

Medium term suggestions

– The DFS and the RBI will frame necessary guidelines for payment standards and interoperability across the broad spectrum of payments and settlements system.

– The department of economic affairs will constitute committees to explore:
a) Changes in the regulatory mechanism for the Payments and Settlement Systems Act.
b) Setting up a centralized KYC regsitry which will include a unique identification number or other proof of identity for card and digital payments.
c) Introduction of a single payment gateway for all card and digital payment transactions via the NPCI.
d) Studying feasibility and framing rules for creating a payments history for all card and digital payments and ensure merchants/ consumers can leverage their credit history to get micro loans.