RBI

Reserve Bank of India Proposes the Use of Prepaid Cards Due to Growing E-Commerce Sector

April 21, 2024         By: Michael Cheng

To promote the introduction of new payment regulations, the Reserve Bank of India (RBI) is pushing for collaboration between banking establishments and thriving e-commerce firms.

“E-commerce is galloping at a fast pace and we have to take cognizance of it. Just like we allowed telecom companies to apply for payment banks because the customers for both are the same…we are not averse to allowing e-commerce companies to form JVs (joint ventures with banks) or become banking correspondents,” said H.R. Khan, RBI deputy governor.

Local online companies have been asking for new ways to incorporate two-factor authentication process (TFA), suggesting that the security procedure is a hindrance for small payments.

Khan’s solution includes the use of prepaid cards to avoid lengthy TFA practices. He also made it clear that current TFA policies in place will not be revamped.

With a value of over $12 billion, the country’s e-commerce sector is one of the fastest moving markets in India. At the moment, most online purchases are still paid using traditional payments methods, i.e. cash on delivery. Allowing more lenient TFA processes could help nurture the growth of online businesses.

“Most of the consumers have adjusted to a two-factor authentication because of which India’s security systems are much advanced. Now we don’t want to slip back. We have already relaxed these restrictions on tap-and-go cards and are thinking on whether to extend it to small transactions which could be from Rs.1,000 to Rs.5,000,” highlighted the RBI deputy governor.

The central bank has received an overwhelming response of over 41 payment bank applications from large telecom companies, such as Vodafone Group Plc and Bharti Airtel Ltd. For now, the RBI is evaluating the submissions and has not awarded any licenses.