In what is being seen as a digital push for the banking landscape in India, the Reserve Bank of India (RBI) recently announced that the National Electronic Funds Transfer (NEFT), its retail payment system, has become a 24×7 facility that will be available round the year, including bank holidays. This followed another major change RBI announced after its July monetary policy review—that processing charges levied for NEFT and RTGS (real-time gross settlement) transactions will not apply starting January 2020. Nilanjana Chakraborty asks experts what RBI’s moves mean for the future of digital payments in India
Transfer of large sums through RTGS will be easier
—Adhil Shetty, chief executive officer, BankBazaar
There has been a strong push in favour of digital transactions, and the costs associated with digital payments have been seeing a steady downswing in the last few years. This waiver by RBI completely takes away the costs associated with fund transfer via NEFT and RTGS for customers and brings them on a par with other alternatives such as UPI (Unified Payments Interface).
NEFT and RTGS are much faster compared with offline alternatives such as cheque payments or demand drafts. This waiver is especially significant in the case of RTGS as it allows you to instantaneously transfer large amounts, typically greater than ₹2 lakh, unlike UPI, which has a transaction limit of ₹1 lakh per day.
Currently, an RTGS transaction would cost you anywhere between ₹5 and ₹50, depending on whether you were doing it via Netbanking or at the branch. With RBI waiving the fees, an RTGS transaction becomes as convenient and fast as UPI even when you transfer large amounts.
Moreover, with NEFT now available 24×7, fund transfer will become much easier.
With NEFT becoming available 24×7, customers will be able to transfer money any time. This will give further impetus to digital payments since consumers will get the benefit of transacting round the clock.
This will be extremely beneficial for large-value transactions which cannot be done through UPI or IMPS (Immediate Payment Service), and allow large consumer bases to adopt digitization seamlessly. Additionally, the eventual waiver of charges will benefit small traders who operate on small transactions and margins and for whom every penny counts. The move will go a long way in encouraging digitization of payments and enhancing financial inclusion.
Also, making the exact time of NEFT fund transfer known to the consumers via technology can accelerate the adoption level. Having an inclusive medium for people without smartphones will create a wider, more diverse consumer base for digital payments.
Lastly, incorporating biometrics, and creating a standard for face ID-based payments would be a major leap to enable digital payments on a mass scale.
Regulator must consider a similar waiver for IMPS
—Raj Khosla, founder and managing director, MyMoneyMantra.com
The central bank wrapped up 2019 with a perfect new year gift for savings bank account customers. Come 2020 and your NEFT and RTGS transactions would be free of any charges.
The move to incentivize digital payments will give the desired fillip to retail online transactions. Both individual customers as well as small business owners, who often deal in small transactions, would now be able to remit money online, without any charges. This will substantially bring down the operational expenses for them.
Loss of online transaction fee on NEFT or RTGS will indeed be a debit for the banks, albeit a minor one. The no-cost online transactions have the potential to overtake the cheque clearing system, eventually cutting down banks’ operational expenses.
Given the exponentially expanding volume and also the ease of e-transactions, RBI and the banking fraternity needs to firmly protect itself against money laundering.
Further, to fully boost digital transactions, RBI must consider a similar waiver of charges on IMPS.
A positive for consumer and business ecosystems
—Deepak Sharma, chief digital officer, Kotak Mahindra Bank
RBI’s roll out of 24X7 NEFT is a welcome step. Customers can now transfer amounts greater than ₹2 lakh even after 6:30pm, which was the earlier cut-off time, via NEFT. While NEFT remains near-real-time wit transfers taking less than 30 minutes, it will not compete with IMPS, which is for smaller-value fund transfers of under ₹2 lakh.
For retail customers not requiring instant transfer, NEFT will become a viable option. Transactions routed via NEFT instead of IMPS will have a marginally lower cost for banks.
We now have three 24X7 payment platforms: UPI, IMPS and NEFT. Each platform targets customer segments with different payment needs and transaction amounts. This should lead to further innovation in payments. This will also help balance the load between different payment systems, which is a positive for the consumer as well as business ecosystems. As NEFT becomes the preferred mode for payment, this will lead to a surge in digital transactions both for retail and SME segments. This should also reduce cheque volumes over a period of time.