Ratan P Watal Committee

In accordance with the Payment and Settlement Act of 2007, a “digital payment” is any “electronic funds transfer” method. It includes point-of-sale transfers, automated teller machine transactions, direct deposits or withdrawals of funds, transfers initiated by phone, internet, and card payments. A person may also initiate a digital payment by giving a bank instructions, authorizations, or orders to debit or credit an account held with that bank through electronic means. The government’s digital initiative’s overarching goal is to lower the cash to GDP ratio from roughly 12% to 6% over the next three years, according to the “Committee on Digital Payments”. The committee was led by former finance secretary Ratan P. Watal. The Finance Ministry notified the 11-member committee of its existence in August 2016. Its job was to assess the nation’s current payment infrastructure and make recommendations for the best ways to promote digital payments. The Reserve Bank of India (RBI), the Unique Identification Authority of India (UIDAI), the tax department, and numerous industry organisations in the payments sector were also represented. The Committee’s goal is to create a road map that will enable the growth of digital payments during the following three years. The report suggests integrating future technology into the market as well as including socially and economically marginalized people. It aims to protect the security of digital transactions and ensure fair play for all players, including those who will join this new transaction area, as well as stakeholders.

Recommendations of the Ratan P Watal Committee:

• The Committee has suggested a medium-term plan for quickening India’s adoption of digital payments.
• The plan needs to be supported by a legal framework that encourages competition, interoperability, and open access in payments in order to close the digital gap.
• It has recommended upgrading the institutions and infrastructure supporting digital payments as well as the interoperability of the payments system between banks and non-banks.
• It also suggests a structure for rewarding ideas that are at the forefront of efforts to enable digital payments.
• Aadhaar and cellphone phones should be more widely used to make digital payments as simple as cash.
• The need for interoperable payments within non-banks as well as between non-banks was expressed.
• It was proposed to separate payment regulation from central banking in order to advance all digital payments.
• Additionally, it urges the market’s use of cutting-edge technologies as well as the participation of socially and economically marginalized people.
• Assemble the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) with the rest of the RBI.
• In order to give BPSS an express mandate for competition and innovation, consumer protection, open access and interoperability, controls on systemic risks, and data protection, it was demanded that the Payments and Settlement Systems Act, 2007, be amended.
• Following a cost-benefit analysis, the operation of payment systems like Real Time Gross Settlement (RTGS) and National Electronic Fund Transfer (NEFT) may be outsourced.
• It emphasizes the necessity of preserving the security of digital transactions and ensuring fair play for all parties involved and new participants who will enter this new transaction environment.

Issues Faced by the Ratan P Watal Committee:

One of the committee’s responsibilities was to research and make recommendations for modifications to the regulatory framework established by different acts, including the Information Technology Act, the Payments and Settlement Act, and the RBI Act, among others. In order to promote digital payments, the committee had proposed making the regulation of retail payments independent from the role of the RBI. It had recommended keeping RBI regulation just for SIPS and urged for the creation of a separate Payments Regulatory Board (PRB) as an autonomous authority for retail payments (a systemically important payment system). Due to many factors, such as system interoperability concerns and the central bank’s function as the lender of last resort, the SIPS and retail payment systems are both reportedly under the control of the central bank (LOLR). For the PRB, the RBI has proposed a structure akin to a monetary policy committee, in which decisions are made independently but implementation is left to the banking regulator.

Types of Digital Payments:

• Unstructured Supplementary Service Data: Text messages are sent using the Global System for Mobile (GSM) Communications  protocol. Similar to
• Short Message Service(SMS) is USSD: USSD use codes made from of characters found on a mobile phone. A real-time communication session is created between a phone and another device using a USSD message, which can be up to 182 characters long and is typically a network or server.
• Unified Payment Interface(UPI): It is a payment method used to send money through a mobile application.
• Aadhaar Enabled Payment Service (AEPS): It is a digital payment method that uses Aadhaar and requires only the customer’s Aadhaar number to make payments to any retailer. AEPS permits transactions between banks.
• Mobile wallets or e-wallets: They are the more feature-rich digital equivalent of traditional wallets. For instance, ICICI Pockets, Paytm, Freecharge, etc.
• Cards: Up until now, cards have been the most popular form of electronic payment. They are employed for electronic payments and money transfers. The three basic sorts of cards are credit cards, debit cards, and prepaid cards.

Advantages of Digital Payment:

• Digital payments can promote economic expansion, international e-commerce expansion, and social and financial inclusion. 
• Digital payments allow users to conduct some types of transactions that are not possible with cash, which can help the government stop tax leakages, criminal activity funding, and cash-related costs (such as remote payments).
• Digital payments can make it possible to offer micro-credit to low-income families and small businesses by facilitating the development of a strong credit history.
• Fostering India’s budding e-commerce industry and establishing it as a significant e-commerce market.
• The low cost and cheap price of digital payments is one of its most distinctive benefits. In addition, digital payments have the ability to open up access to other financial services like credit facilities for low-income people and small businesses.

Challenges of the Digital Payments:

• India continues to use digital payments at one of the lowest rates in the world.
• India has one of the lowest rates of point-of-sale (POS) terminals per million people in the world, and there are issues with convenience, safety, competition, and consumer protection.
• The rollout of reliable and user-friendly digital payment solutions in unconnected or unreachable portions of the telecoms network is still difficult.
• Controlling payment and settlement systems Giving people access to consumer protection
• Given India’s low literacy rate, guaranteeing the safety and security of electronic transactions is undoubtedly a difficult task.

Conclusion:

As the wheel was used to move, digital payments are used to finance. Our population, the majority of whom are migrants in large cities or live in rural India, is given an opportunity like never before. For those who are still excluded, in particular, it promises access to formal financial services and benefits from e-commerce. Digital payments can help the government better control tax evasion, criminal activity funding, and cash-related expenses in addition to boosting financial inclusion, and introducing new business models, and markets. Parallel to the push toward cashless transactions, connection infrastructure needs to be built. It’s also crucial to have more open platforms with a framework that works together. India requires both banks and non-banks to work together to promote digital payments.