Now Non-Bank Entities Can Authorise RTGS, NEFT Transactions: RBI Lays Out Guidelines

In significant market development, the Indian central bank, The Reserve Bank Of India, laid out the eligibility criteria for the non-bank entities to enter RBI’s centralised fund techniques (CPS). It is big news for Fintech’s paving path for Paytm, PhonePe and similar businesses to mobilise RTGS and NEFT transactions. Until now, only banks and non-bank entities reminiscent of NABARD and Exim Bank were only allowed entry to CPS. RBI now has extended its eligibility criteria to Prepaid Payment Instrument (PPI) issuers, card networks, and white label ATM operators.

Announcing the news, RBI said that allowing entry of non-bank Fintech in the CPS system will improve overall efficiency and reduce the risk of the payment ecosystem. It will also benefit the non-banks in lowering the cost to payment, dependency on banks, and time to complete payment. Additionally, it will eliminate uncertainties in the finality of the payment as all settlements will be carried out by the central bank money.

“The risk of failure or delay in execution of fund transfers can also be avoided when the transactions are directly initiated and processed by the non-bank entities,” mentioned RBI.

In April, RBI declared that it would allow non-bank entities in a phased manner to induct in CPS. In India, CPS encompasses Real Time Gross Settlement (RTGS) and National Electronic Fund Transfer (NEFT), owned and operated by the central bank. In December 2019 and December 2020, RBI made NEFT and RTGS available 24x7x365 days, and now it has allowed non-banks to carry out RTGS and NEFT techniques.

RBI has listed four primary advantages of allowing Payment System Providers (PSPs) to CPS, like reducing cost and chances of failures. It declared that interested parties would have to embrace elevated effectiveness, improvements, and improved information safety requirements to get onboarded. Companies located outside India are asked to empower their local offices to embrace the new changes successfully. Companies will have to bear Rs 25 crore as a minimal cost of the internet at the beginning. Foreign companies interested in entering the Indian market will have to take the necessary approval from the RBI. In that case, for foreign companies operating through local offices, the responsibilities of all operation and management of any contingency, including settlement obligations, will remain with the foreign office. Businesses will have to comply with sufficient know-how, cybersecurity infrastructure, and knowledge localisation norms, among others.

It will add a new chapter in Indian Fintech’s history, empowering them to leverage an extended market, creating more opportunities for them to innovate.

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