The India Policy Series: RBI launches cross-border bill and credit-based UPI payments

Last month, the Reserve Bank of India (RBI) Governor launched three payments related initiatives at the Global Fintech Fest. The first was Bharat BillPay Cross-Border Bill Payments, allowing non-resident Indians (NRIs) to make utility, water, telephone, and other bill payments for their families in India. The next two new features were on the already widely popular UPI; one which links RuPay Credit Cards to UPI, allowing credit-based UPI payments, and a UPI Lite feature, which enables on-device wallets to make near-offline, small value UPI transactions.

UPI Lite and credit on UPI are features that have been on the RBI’s agenda for some time, but Bharat BillPay based cross-border bill payments provides NRIs with an efficient way to make bill payments directly through the route, saving time and costs.

Enabling recurring bill payments for NRIs via BBPS

Recurring bill payments in India are possible through various modes, such as card-based standing instructions/mandates, eNACH (a mandate product from the National Payments Corporation of India or NPCI), UPI AutoPay (recurring payments via UPI), and other subscription products.

Bharat Bill Payment System (BBPS) is an NPCI product of a centralised and interoperable payments platform, which provides a solution for consumers to make standardised recurring bill payments, for electricity, gas, water, telecom, insurance, loan payments, education fees, mutual fund subscriptions, municipal taxes, and FASTag recharges. The utility payments can be made through multiple modes of payments, including internet banking, cards (credit, debit and prepaid), funds transfer mechanisms like IMPS, UPI and NEFT, AePS.

BBPS has transformed the bill payments experience in the country, with over 20,000 billers onboarded and 80 million transactions processed on a monthly basis. The feature is only available to residents in India. In August, 2022 the RBI proposed in its Statement of Development and Regulatory Policies to enable the BBPS to process cross-border inbound bill payments and offer the facility to NRIs.

This September, the RBI materialised the proposal by allowing the processing of cross-border inbound bill payments under the Rupee Drawing Arrangement (RDA). In India, cross-border payments (inbound or outbound) are processed through various regulatory schemes like the RDA, Liberalised Remittance Scheme, and Money Transfer Service Scheme. The RDA is a channel to receive cross-border remittances from overseas jurisdictions. Via its Direct to Account facility, the RDA allows foreign inward remittances received under it to be transferred to the KYC compliant bank account of the beneficiary, where the funds are received through modes like NEFT and IMPS. This facility has now been extended to allow foreign inward remittances received through BBPS to be transferred to the KYC compliant bank account of the biller (beneficiary).

The RBI announced on the occasion of the Global Fintech Fest, 2022 that Federal Bank in collaboration with the UAE’s Lulu Exchange is the first bank to go live on the BBPS cross-border inward bill payment facility.

The BBPS cross-border bill payments will need to comply with other conditions as applicable to the RDA Direct to Account Facility. The facility allows the credit directly to the account of the beneficiary subject to the following conditions:

1. Transfer only to  KYC compliant bank accounts;
2. undertaking KYC/CDD of the customer before the inward remittance to such account is credited or withdrawn;
3. appropriately marking the direct-to-account remittances to indicate to the  foreign inward remittance;
4. ensuring accurate originator information and necessary beneficiary information is included in the electronic message while transferring funds;
5. identification and other documents of the customer to be maintained as per the provisions of PMLA (Maintenance of Records) Rules, 2005; and,
6. reporting of suspicious transactions to the FIU-IND.

Offline payments via UPI

In addition to cross-border bill payments, there are UPI-related developments.

UPI Lite is an offline payments feature working as an on-device wallet with a maximum balance limit of Rs.2000/-. It works the same way as any other mobile wallet, through which customers will be permitted to make small value UPI payments up to Rs.200/-. There is no requirement for an additional factor of authentication (the UPI Pin) for these transactions.

The NPCI noted through various studies that 75% of the total volume of retail transactions in India (including cash) are below Rs.100/- transaction value, and 50% of all UPI transactions have a transaction value up to Rs.200/-.

The NPCI’s goal is to process billion-a-day transactions within the next 3-5 years, which requires a significant infrastructure upgrade of the entire UPI ecosystem. This step, in addition to providing an efficient offline mechanism for customers to make low-value payments, is also an efficiency strategy, aiming to reduce the burden on banks with processing already exploding UPI volumes, which are currently at 62,893.4 lakhs as on July, 2022. Currently, only debit has been permitted offline, with credit (wallet recharge, refund, etc.) still online, but eventually credit will also be permitted offline.

Credit based payments on UPI

Until now the only mechanism for allowing credit based payments via UPI was through the linking of overdraft accounts. In June this year, the RBI decided to permit the linking of credit cards to UPI, starting with RuPay credit cards, in addition to the linking of savings andcurrent accounts. This increases the avenues through which customers can use their credit cards for purchases, and for merchants allows acceptance of credit payments through the asset-lite QR codes.

Post this approval from the RBI, the NPCI has now issued an Operating Circular outlining the details of the initial phase of operationalisation. The system will allow customers to discover and add credit cards to be linked to a UPI Virtual Payment Address, which is a UPI ID of which the credit card number will not be a part. The payment will also be authorised via the UPI pin. An important aspect is that for the category of small offline merchants as per applicable RBI regulations, the MDR charged will be zero for a transaction amount less than Rs.2000/-. The NPCI aims to obtain learnings and critical inputs from the initial phase, post which the rules will be refined further.

The advantages of internationalisation of NPCI payment products

The UPI related steps add some interesting additional features, taking the NPCI closer to its targets for UPI adoption. Simultaneously, over the last few years, NPCI’s NIPL has been taking significant steps in internationalising its products and services by offering customers abroad to utilise domestic payment mechanisms.

The NPCI has partnered with various entities in Singapore, UAE, Malaysia, and Bhutan to allow Indian tourists to make payments through UPI at selected merchant stores in these strategic locations. Other than UPI, NPCI made efforts to popularise acceptance of its RuPay cards at PoS and ATM terminals in Bahrain, Japan, China, and the USA.

Cross border bill payments via BBPS is a useful addition to these steps, easing payments for NRIs and opening the doors for a wider adoption of BBPS globally. The most significant benefit of the cross-border bill payments is for NRIs, easing requirements like making remittances to their Indian bank account first from which bill payments were facilitated. Moreover, the BBPS allows payments using multiple modes, including UPI, NEFT and even prepaid cards, which provides numerous options to consumers. The market players having BBPOU licenses can gain access to the international market of NRI payments to India, allowing them to increase their revenue as well.

For a full discussion on the latest policy developments each month, do check out Cashfree Payments’ Policy Radar.