RBI’s New Payments Regulatory Board: How It May Change India’s Payments Ecosystem

The Reserve Bank of India (RBI) recently announced the establishment of the Payments Regulatory Board (PRB), which will replace the existing Board for Regulation and Supervision of Payment and Settlement Systems (BPSS). PRB’s new model of governance will provide more supervision and policy coordination, but some of its functions will still be similar to the existing board. 

The Need for PRB

The payments segment in India has seen explosive growth in recent years, thanks to innovations like the Unified Payments Interface (UPI), digital wallets, real-time settlement, credit on UPI, and cross-border transactions. But with greater growth comes greater complexities in risk mitigation, consumer protection, and innovation.

Kunal Varma, founder and CEO of Freo, a digital banking platform, says: “The RBI likely saw the need for a more dedicated and forward-looking regulatory body that could keep pace with this evolution. The PRB is intended to bring more structure, focused oversight, and adaptability to manage the future of payments in a high-growth digital economy.”

Vijay Khubchandani, CEO and founder of Seven, an organisation that creates contactless wearable payment technology, says, “Establishing the Payments Regulatory Board is a strategic step by the RBI to increase the regulatory coverage of India’s growing payments infrastructure. The intent is to improve oversight capabilities, enable quicker decision-making, and enable alignment with evolving financial system demands.”

According to experts, the shift also indicates that the previous format, where BPSS was an internal committee of RBI, may no longer be relevant to regulate a rapidly changing and expanding payments ecosystem that now touches the everyday consumers, businesses, and the economy as a whole.

Structural Changes

The creation of the PRB points towards more structured and transparent administration. Compared to BPSS, which was an internal subcommittee of the RBI, the PRB is a statutory body comprising six members: three nominees from the central government, the RBI deputy governor in charge of payment systems and one RBI official nominated by the central board. The RBI Governor, Deputy Governor, and the nominated RBI officer will be ex-officio members of the board.

This inclusion of government officials represents a historic move away from the past all-RBI composition. Says Varma: “It creates more alignment between regulatory goals and national priorities, such as financial inclusion, digital public infrastructure, and secure digital growth. It also strengthens accountability and ensures that key stakeholders' interests are represented as the payments landscape continues to expand.”

Khubchandani adds: “The board, now with the government sharing representation, should stand more in tune with national priorities, such as consumer protection, digital public infrastructure, and financial inclusion. However, it raises the question of the right balance between autonomy and oversight.”

Possible Impact

The evolution of the payments ecosystem is driven by innovation, such as tokenisation, artificial intelligence, and the development of central bank digital currencies (CBDCs). PRB may enable quicker and more effective decision-making. A specially appointed board with particular powers can react fast, mitigate risk, and take advantage of new opportunities.

Second, the PRB may debate current industry concerns. For instance, the merchant body has urged the central government to introduce a 0.3 per cent Merchant Discount Rate (MDR) for UPI transactions, but only for large transactions. The body has also requested for a nominal MDR on RuPay debit cards for all merchants.  With greater mandate and representation, the PRB may evaluate such policies balancing consumer interests and commercial viability for payment service providers.

Lastly, the government nominees may lead to greater harmony between payments regulation and national programs such as the Digital India initiative, financial inclusion initiatives, and data protection standards.

Challenges Ahead

While the PRB’s establishment can be seen as a positive step, questions might arise regarding the balance of independence and government influence. The RBI’s autonomy in regulating financial systems has always been a bedrock for market confidence. The new model will definitely demand greater cooperation to ensure the absence of partiality in judgement. 

Adds Khubchandani, “[the inclusion of government nominees in PRB] raises the question of the right balance between autonomy and oversight.”

In addition, the PRB would have to ensure that despite having a formalised composition and bi-annual meetings, it will need to keep up with the speed, especially considering the fast pace of digital payments.