igital payments and financial technology (Fintech) solutions have caught on rampantly amongst the Indian society in recent times, particularly after a sweeping, unprecedented cash crunch brought on by the government’s demonetization drive.
In light of these new innovations, the Payments and Settlement Systems Act of 2007 [PDF], the code by which payment systems are regulated, was amended to include digital payment gateways and platforms. The amended regulations will look to deem physical cash and digital cash as equals, with developments toward interoperability and a unified payments platform as India embraces the digitization of cash.
As it transpires, bitcoin will not be included as a valid payment system under the new act, according to a report in Indian publication The Telegraph.
Bitcoin Continues to Get Shunned
The prospect of digital currencies’ being acknowledged by authorities were dealt an early blow when India’s central (federal) government decided against creating a separate regulator for the digital payments industry. The authority to regulate was promptly awarded to the Reserve Bank of India (RBI), the country’s central bank. Setting up a separate regulator would have led to one too many financial regulators, according to officials. “Globally, the trend is towards unified regulators and the RBI is a strong institution, hence the government chose to go with it,” the officials stated according to the report.
The RBI will set up a ‘Payments Regulatory Board’, headed by its governor, to oversee and handle digital payment gateways which now fall under the amended regulations
Digital banking and Fintech platforms are seeing massive adoption in a country with soaring smartphone penetration.
Earlier this month, the central bank issued a public notice, urging caution among bitcoin adopters and users in the country while stating that no exchanges or businesses dealing with the cryptocurrency were licensed by the authority. A week after the public notice, India’s small but growing bitcoin industry came together to form the “Virtual Currency Association”. The industry group, which consists of India’s biggest digital currency companies and exchanges, has since set out to lobby the government to license and recognize bitcoin trading.
However, the report suggests that “attempts by bitcoin players to come under the ambit of the new body are unlikely to succeed as the government and the RBI are not in favour of legitimizing bitcoins as legal tender”.
The stance is certain to prove frustrating among bitcoin exchange operators and companies in the industry, particularly when the new regulations allow licensed e-wallet platforms like widely-adopted PayTM to gain access to RBI-controlled remittance infrastructure. Fundamentally, Fintech platforms like PayTM and other e-wallets will gain payment and settlement interoperability with every bank account in a country of over a billion people.
India Isn’t Catching On
The continuing hardline stance taken by authorities contrasts to approaches taken by other Asian countries.
In December, Philippine authorities revealed that they were considering regulating bitcoin exchange operators after a marked increase in bitcoin remittance in the country. Come January, the regulations were approved before their public release last week. Fundamentally, bitcoin is now recognized as a valid payment method in the Philippines.
In Japan, industry insiders expect to see up to 20,000 bitcoin-accepting merchants in 2017, quintupling the total from 2016, due to the upcoming regulations toward the digital currency industry, expected in June. Tokyo-based bitFlyer, Japan’s largest bitcoin exchange now sees investors in all three of the country’s ‘mega-banks’. Japan recognized bitcoin and virtual currencies as equivalents to fiat cash in early 2016 before proceeding to pass a bill toward the regulation of bitcoin exchanges.
By turning a blind eye toward the bitcoin industry when not shunning it completely, India is missing a trick when it comes to the next generation of simpler, more efficient and faster digital payments.