This article summarizes the various issues discussed in our webinar on digital payments during COVID-19 with Mr. Arpit Ratan, Co-founder of Signzy. The webinar is available on YouTube.
On 01 May 2020, Aparajita Srivastava and Arpit Gupta from Ikigai Law held a webinar on ‘Digital payments: Threats and opportunities during the pandemic’. Mr. Arpit Ratan, Co-founder of Signzy, was the guest speaker for this webinar. They discussed how digital payments will become crucial in a post-COVID world, and how this increases the need for an enabling policy framework for digital payments. We have highlighted the key issues from the webinar below. For each issue, we have also given the relevant time stamp from the webinar’s YouTube video.
Key issues discussed in the webinar:
1. On the impact of COVID-19 on digital businesses: The COVID-19 pandemic has forced businesses to look at digital transformation with a heightened sense of importance. Changes which have not been implemented by businesses over the last three years have been packed into the last three months. The no. 1 driver for digital transformation is no longer the CTO or CEO, but it is COVID. (4.25 onwards)
2. On progress in merchant on-boarding process: The merchant on-boarding process for accepting digital payments has become very seamless over the last 2 years, making it as real-time as possible. The government has also solved for many problems like e-stamping, digital signature and business validation (6.30 onwards). However, RBI took a very stringent approach in its video KYC regulations, as opposed to taking a risk-based approach. SEBI’s version of video KYC is more flexible, as it allows officially valid documents to be used for video KYC and provides a good framework for their online validation and submission”. (9.35 onwards)
Mr. Ratan also discussed how Signzy has focused strongly on remote KYC processes- “Signzy had sought to address the issue of remote onboarding from its very first day- physical KYC was never a priority for us. We came out with a video onboarding product in 2015, which was unregulated at that time. In the last 2 years, Signzy has done online onboarding for a large number of SEBI-registered entities through their video KYC option. Currently, we do about 150,000 video onboardings per month.” (11.00 onwards)
3. On security in remote KYC processes: Mr. Ratan also mentioned how Signzy has ensured security in its remote KYC processes- “We have built technologies to check if someone is using a VPN to enter the system. We have put many checks and balances in place to ensure security (12.30 onwards). From security point of view, there are lots of technologies that can make remote onboardings as safe as physical onboardings.”
4. On issues with remote onboarding in tier-II and tier-III cities: Many video onboardings today happen from remote areas, but one has to engineer for low bandwidth/poor internet connnections in such onboardings. (18.20 onwards)
5. On future of contactless payments: There will be increased emphasis on contactless payments in a post-COVID world. India does not have good adoption of PoS machines allowing for contactless payments. But contactless PoS will become a necessity in the future due to social distancing norms. Payments will be authorised in the future through contactless biometrics, like iris and facial recognition. (21.00 onwards)
6. Wishlist from the regulator (24.00 onwards)–
(a) Remove zero MDR;
(b) Promote dispute resolution in micropayments. Payments work on trust- failed payments and unwarranted debits decrease trust. RBI’s dispute settlement mechanism today is very difficult, and it needs to be simplified. Look at USA’s example, which has a simple system of insuring each transaction.
(c) Banks should not be conservative in implementing guidelines released by RBI. They shouldn’t replicate what RBI says in its guidelines where the guidelines give the banks flexibility to frame their own policies within the limits set by those guidelines.
7. On change in revenue models post COVID-19 (30.00 onwards): One of the biggest problems will be that of chargebacks. Travel industry and e-commerce, whose revenues have fallen drastically, will also have an additional burden of paying chargebacks now. Earlier, chargebacks could be reconciled in the transaction itself, but now they will have be paid separately. It was earlier a theoretical risk, but is now a very real risk. There will also be an increased focus on doing risk assessment of merchants, which is a highly neglected aspect currently. The industry will look for merchants who are ‘safer bets’ and can bring in revenue, as opposed to just acquiring any and every merchants en-masse just to show increased acquisition numbers.
8. On the issue of fraud (36.00 onwards): There is a good chance of digital payments fraud increasing with a spike in adoption of digital payments. India’s position on handling such fraud is not good. The RBI Ombudsman usually holds the customer liable in most fraud cases. Banks can’t distinguish between a genuine and fraudulent transaction. Though USA’s measure of insuring all transactions is useful, it can result in increased transaction cost in India. Security measures such as OTP and two-factor authentication can actually help in increasing adoption of digital payments.
9. On the issue of promotion of cash and digital payments simultaneously (42.55 onwards): There are still places in India that do not have access to mobile data/internet connection. Even PoS in India works on a data network. So cash is necessary wherever there is lack of infrastructure. Additionally, the Indian financial system does not incentivize adoption of digital payments enough for people to stop using cash. People looking to avoid tax liability will always prefer cash. If the government is going to remove MDR and charge 18% GST on top of that, then people will obviously prefer cash.
10. Final concluding remarks (45.00 onwards): India needs to improve its settlement mechanisms for digital payment transactions. It should look at countries like USA, which have a high digital payments penetration rate despite having a high population. India also needs to do away with zero MDR policy, especially in a post-pandemic market where businesses are already facing financial difficulties.