What’s in the news?

• The RBI has created a Payment Infrastructure Development Fund (PIDF) with a corpus of Rs 500 crore, with an aim to give a push to digital payments.
• The RBI has made an initial contribution of Rs 250 crore covering half the fund. The remaining will come from the card-issuing banks and card networks operating in the country.

Need for the fund

• This fund has been created to encourage acquirers to deploy Point of Sale (PoS) infrastructure, both physical and digital, in tier-3 to tier-6 centres and north eastern states.

• A POS terminal is an electronic device used to process card payments at retail locations.

• Given the high cost of merchant acquisition, most of the POS terminals in the country are concentrated in tier 1 and 2 cities and towns and other regions have been left out.
• This move will make the economics more favourable and will significantly increase the merchant base accepting digital payments.

News in detail

• The dedicated fund for deepening digital payments infrastructure will receive recurring contributions to cover operational expenses from card issuing banks and card networks and the central bank will also contribute to yearly shortfalls, if necessary.
• The fund will be governed through an advisory council but it will be managed and administered by the RBI.
• The enhanced ability of PoS infrastructure is supposed to reduce demand for cash over time.

Committee on deepening digital payments

• The setting up of PIDF is in line with the recommendations of the report of the committee on deepening digital payments, chaired by Nandan Nilekani.
• The report had also made the case for an Acceptance development fund which will be used to develop card acceptance infrastructure across small towns and cities.