BBPS - How it works
Srikanth Lakshmanan, November 2017
BBPS makes households data-rich.
In May 2013, a committee under RBI executive director G. Padmanabhan studied GIRO based payments across the world and the feasibility of introducing GIRO based payment system in India. While conventionally GIRO payments were paper based and used cheques, the world was moving towards electronic GIRO and the committee in its report proposed the Indian Bill Payment System.
In March 2014, the GIRO Advisory Group, headed by IIT-B professor Umesh Bellur, submitted their report which drew upon the previous GIRO report and defined the contours of the Bharat Bill Payment System, suggesting the formation of a central standards body as non-profit organisation called BBPS Central Unit (BBPSCU), either within NPCI or a similar new entity, with multiple for-profit BBPS Operating Unit (BBPSOU) registered under it to provide commercial operations and make competition.
As per the RBI FAQ on BBPS, all entities involved in bill payment processing are now to be licensed under BBPS either as a BBPSOU or as an agent under a licensed BBPSOU, by satisfying minimum capital requirements and adherence to BBPSCU technical standards and processes by December 2017, essentially putting the industry under licensing regime.
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The front story and upsides

Consumer convenience

If you have paid utility bills through first party websites, chances are you have seen issues with the interfaces, user experiences and payment failures. Aside from user experience (as minimal as payment confirmations), the choice of payment modes and dispute resolution on failed payments have been problems which consumers have encountered without much recourse, mostly because some of these biller sites or bill payment streams are usually the only digital way to pay the bills.

Bill processing, aggregation — Interoperability / level playing field for startups

The electronic bill presentment and payment industry or online bill payment processing industry has been around for more than a decade. The bill processor makes commercial agreements with billers (utility, telecom, Internet providers) and provides multiple channels both online and offline with multiple payment methods. These intermediary bill aggregators and online payment integrators for billers were brought under RBI regulations in 2009 through a direction issued by Payments and Settlement Systems Act 2007. The challenge for these intermediaries has been in adding more billers because billers who have already integrated with existing aggregators have no additional incentive to provide access to startups. It became increasingly difficult for newer startups to get into agreements with all billers and instead could only become referrers and agents of existing aggregators. For example, as recently as 2017, PhonePe was blocked by Airtel. BBPS offers a fresh start to these processors; the necessity of having agreements is now not a precondition to offer service to customer and billers can’t block non-friendly or rival service providers from providing the service citing commercial considerations.

Better collections at low cost for billers

Traditionally, utility billers and particularly state owned electricity PSUs and DISCOMs have faced challenges in collecting bills. Aside from “cost of cash” and the cost of collections, enforcement of penalties for nonpayment of bills might sometimes cost more than the bill itself.
Billing companies over the years have adopted various means in solving this cost of collection problem, ranging from ECS which some customers find unfriendly, leading to its slow death, to online bill payment through payment gateway integration, exposing biller data to bill aggregators and collectors who in turn sold bill payment facility as a service through agent networks, both offline (eSeva centres, retail recharge outlets) and online (digital wallets, apps, netbanking).
While online bill payments across channels kept growing, traditional cash based bill collection had large dues or cost of collection. In some cases like UP DISCOMs, the black swan event of demonetisation provided a one time relief, but the problem largely exists even today leading to accumulation of dues. BBPS through its multiple competing BBPSOUs (bank and non-bank payment entities) and its agent networks, aims to increase efficiency of collections at low cost through more avenues.

The backstory and other effects

Public Credit Registry

RBI wants a public credit registry . Multiple economists (Viral Acharya, Watal Committee Report R6) in the government are of the view that a public credit registry, a central database of loans, would help instill a better credit culture in the country. PCR is not only a database of loans, but would also maintain profiles and scores of prospective credit seekers which would be built through various data sources including utility bill payments. While the current credit rating agencies have data of mostly everyone in India’s formal economy, data is hard to come by for those in informal economy, which constitutes majority in India. The government has also set up a high level task force for PCR.

Flow based lending

Giving credit based on scoring of transaction data is the essence of flow based lending. But that can be possible only for people who do digital payments and leave a digital trail. In the absence of real infrastructure, consumer mistrust, and high cost of digital payments, cash would still rule.
So the next option is to generate data wherever possible, and that’s where bill payments come into play. Even when the payments are in cash, they will be linked to individual using identifiers (this is also a reason why ubiquitous linking is being pushed) and scores can be built.
Credit scores are usually maintained at an individual level. An active, recurring use of an ID, like the UID, can help in continuous scoring, profiling and tracking the individual. This could give an indicator of credit risk as the person can be tracked anytime. This is the reason why UID is being pushed as ubiquitous ID, to make fleeing after obtaining credit a minimal problem. It is an altogether different thing if the semblance of ‘low-risk’ translates into low interest loans or lenders maximise their profit.
But even after 100% Aadhaar coverage, some will still be data poor or outside data generation activity as the behaviour of performing financial transactions may be limited to one individual within a large family. The common expenses of the household consumed by the entire family will be distributed and in other cases grouping the entire household data would be difficult for smaller players who are fragmented across payment channels. As we move into a gig economy, three years of salary statements will be hard to come by for many who seek credit, and so moving into a scoring mechanism based on recurring spending would be a better indicator of creditworthiness.
Electricity, water and DTH bill payments will also enable scoring of households, measuring their discipline alongside their spending capability. Aside from credit, there are also other household level financial services like medical insurance, child savings, and education loans for which tracking, scoring, or profiling at a household level is far more effective than at individual level. Soon other categories of bill payments like school fees, insurance premiums, municipal taxes will get added in BBPS, offering convenience to consumers, more business to providers, and increase collection for billers while making the household data rich, at-least when it comes to spending, as opposed to larger, 360 degree data richness aspirations of SRDH and Servam projects.

Agent network, national scaling of eSeva

Beyond launching the digital infrastructure, an important aspect of BBPS is that it would rely on the agent network for collections. The expectation is multiple BBPSOUs will focus on growing the last mile agent network which will give consumers more touch points to pay bills and provide sustainable economic incentives for agents and provide self employment opportunities. CSC is one BBPSOU licensee, who already operates touch points through its network and would be expected to grow its network to provide digital services through its village level entrepreneurship program. While initially a convenience fee isn’t charged in BBPS, as the agent network expands, BBPS is designed to accommodate a convenience fee to ensure sustainability of platform and ecosystem participants.

Centralization is new mantra

In the name of interpretability and standardization, we are being taken to a data centralization regime, where consent doesn’t matter. State agencies have got used to the situation where the right to collect data, directly or indirectly through platforms like BBPS, is implicitly given. The scope of power abuse increases immensely with each entity collecting more data and interlinking across each other.
In the absence of a data protection bill, legal and technical infrastructure to protect data, and lack of discussion of FAT-ML in an Indian context, we are stepping into a territory where there are significant cyber security and privacy risks. The cost of these would far exceed the benefits this data regime might. A honest multi-stakeholder discussion is needed before adopting data-first platforms.
The use of data for credit is seen as greatest reason to justify increase in centralization of data. India in the past has seen suicides related to credit, from farmers microfinance loan holders. In October 2017, a family set themselves ablaze in front of the Tirunelveli collectorate for failing to take action against harassment related to informal lending.
Centralized data collection programs violate the right to privacy even after the Supreme Court declared it as fundamental right. My only hope and prayer would be that the lending industry does not harass or kill any more people.
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