New law needed to protect cashless customers: Expert panel on digital payments

The government’s cashless payment push needs to be urgently backed with legislative steps to protect customers and their data, allow open access payment systems and let the payments regulatory board function independently of the Reserve Bank of India’s central banking functions, the committee on digital payments led by former Finance Secretary Ratan Watal said.

Stating that the drawbacks in the existing Payment and Settlement Systems Act of 2007 compel most of India to rely on cash transactions by restricting the reach of digital payments, the panel has said a Bill must be introduced to amend the law within a month, that is, in the coming Budget session of Parliament.

The existing law specifies neither the purpose of regulating the payments market and promoting competition, nor does it pay any attention to protecting consumers in digital payments. “With the rising number of users of digital payment services, it is absolutely necessary to develop consumer confidence on digital payments (and) essential to have legislative safeguards to protect such consumers,” the panel said.

The present law is also silent on data protection issues, which are becoming more relevant now, the committee said, mooting a regime where consumers shouldn’t be liable for losses arising out of unauthorised transactions or system malfunction.

All payment service providers, including banks, must not only stop restricting access to other payment options to allow an open-access system for digital payments, but also disclose upfront the terms and charges of their service while providing free regular account statements.

Though a sub-committee of the Reserve Bank of India regulates payments, the Watal committee has said that banking requires micro-prudential regulation from RBI, while payments is a separate, more technology-business driven activity, so both need to be viewed separately.

A new Payments Regulatory Board should be backed by law as independent of RBI and if there is any conflict between its policies and the central bank’s policies or regulations, the RBI’s decision shall prevail, the committee suggested.