While throwing light upon current legal framework in place, discuss the legislative steps that should be taken to protect customers using digital payments in the country.

In an effort to move toward cashless economy ,governmnet has been promoting digital payment vigorously.
Case of concern:
According to RBI, 13,083 and 11,997 cases related to ATM,credit, debit card and net banking fraud were reported in 2014-2015 and 2015-16.
This has raised the veracity of secure payment system and it highlights the need to protect consumer involving in such transaction.
Risk associated with e-payment:
a.)Device related risk:For example if someone loses their mobile phone and there are no password protecting the phone or app ,money in an e-wallet could be compromised.
b.)Risk form right access:connecting the e-wallet with other apps like social network could pose a risk of data leakage.
c.) Negligence in Sharing password or OTP with others when using these mode publicly.
Apart from this it is prone to attack like snooping,Tampering which compromise the data privacy of consumer.
Existing law that govern digital payment:

  • The Payment and Settlement Systems Act, 2007 was a major step in this direction.
  • It enables the RBI to “regulate, supervise and lay down policies involving payment and settlement space in India.”
  • Apart from some basic instructions to banks as to the personal and confidential nature of customer payments, supervising the timely payment and settlement of all transactions.
  • The RBI has actively encouraged all banks and consumers to embrace e-payments.

In order to strengthen existing act and to safeguard consumer from risk ,watal committee recommendation should be implemented which has the potential to change payment landscape of India
Watal committee on digital payment, was constituted to suggest ways to encourage India’s movement towards a cashless economy.Its major recommendation are
a.)Independent decision making body:
It has mooted the creation of a Payments Regulatory Board (PRB) within the central bank—an independent decision making body having some members from outside RBI.
b.) Strengthening payment and settlement act to protect consumer:
The panel has also suggested strengthening the payment and settlements Act to include clauses for consumer protection. These include ensuring that the customer is not liable for losses arising from unauthorized transactions, as well as an option to approach the regulator for grievances. It has also sought to address issues on data protection and security.
c.)Widening the scope of real time payment system:
The report has recommended opening up of the payment systems like the real-time gross settlement system (RTGS ) even to non-bank payment service providers.
It has also proposed that online fund transfer systems such as RTGS and NEFT (national electronic funds transfer) be operational round the clock and stressed the need to have full interoperability between banks and payment service providers as well as between the payment service providers.
d.)The committee has also recommended that the government make payments only through digital channels and that it bear the costs of electronic payments where it acts as a merchant.
e.)The committee has suggested bringing payment providers that are classified as systemically important under the central bank’s regulation.
f.)Increase funds to promote digital payments.
Apart from this Bank and Non banking financial system which plays pivotal  role need to strengthen it’s cyber architecture to avert such attack and ensure healthy digital transaction

Question for UPSC Mains:
While throwing light upon current legal framework in place, discuss the legislative steps that should be taken to protect customers using digital payments in the country.

Published: December 28, 2016 | Modified:October 15, 2020