The Reserve Bank of India’s (RBI) recent announcement to establish a new Payments Regulatory Board (PRB) could help India’s fintech ecosystem. For years, the RBI has been the regulator of payment and settlement systems, with both operational and supervisory authority—an inherent conflict. The formation of the PRB, with government and RBI representation and the ability to invite external experts, could lead to a more diverse exchange of ideas and make the process more responsive, with a more specialised regulatory architecture. It could eventually pave the way for a fully independent payments regulator.
Diversity of Voices
The PRB’s broader composition—three RBI representatives and three government nominees, with the RBI Governor as chair—brings a diversity of voices to the table. This differs from the outgoing Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), which consisted solely of RBI officials. By including government nominees and the option to bring in industry and legal experts, the PRB is better equipped to address the complex, rapidly evolving challenges of the digital payments ecosystem, such as consumer data protection, transaction costs, and security. It could help establish uniform guiding principles for all stakeholders. The PRB’s structure is a clear acknowledgment that payments have outgrown the old “one-size-fits-all” central banking model.
Regulatory bodies dominated by a single stakeholder (such as a central bank) risk both capture and inertia, especially as technology outpaces traditional risk frameworks. By contrast, multi-stakeholder boards can produce more adaptive, innovation-friendly regulation, particularly in fast-evolving sectors like payments.
Regulatory Independence
The creation of the PRB represents a balanced approach—retaining RBI leadership while introducing government and external voices—towards regulatory independence in the payments sector. In 2018, an inter-ministerial committee recommended an independent regulator, arguing that the RBI’s dual role as both operator (through systems like RTGS and NEFT) and regulator posed a conflict of interest, potentially harming competition and innovation. Critics of the status quo pointed out that a regulator with “its own horse in the race” might inadvertently favour its own systems over private competitors.
Crucially, the PRB could be the launchpad for a fully independent payments regulator, similar to models in the UK (Payment Systems Regulator) and Australia. Such an independent entity could accelerate competition and innovation. Open, independent, non-volatile regulation could lead to a drop in transaction costs and provide a boost to new market entrants. The PRB could facilitate greater participation of global players, driving down costs and expanding consumer choice.
Strategic Regulation
Strategic, well-designed regulation can yield significant economic benefits for India. The Economic Survey 2025 explicitly highlights that regulatory compliance burdens are a major obstacle to economic freedom for individuals and small businesses, and that deregulation—removing unnecessary restrictions and modernising frameworks—can drive domestic growth and resilience. The Survey points to past successes, such as the implementation of the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC), both of which have contributed to increased efficiency, improved business conditions, and a more competitive economy.
The NITI Aayog’s Strategy for New India @ 75 noted how smart regulation can lead to efficient governance, which can help accelerate GDP growth and expand the economy. Regulatory modernisation is important for attracting private investment, boosting exports, and ensuring inclusive, sustained growth.
With this in mind, it is important to recognise that the RBI’s monolithic control, while effective in ensuring systemic safety, can sometimes slow the introduction of new business models and technologies. With the PRB’s expanded mandate and representation, there is now scope for faster resolution of industry issues—such as merchant discount rates on UPI—and a more nuanced approach to emerging technologies like tokenisation and device-based payments.
Inclusion, Innovation, Engagement
The data already highlights the stakes. India’s digital payments market is projected to reach $10 trillion in transaction value by 2026, according to BCG. Yet, financial inclusion gaps persist—digital payments penetration remains lower in rural areas and smaller cities compared to urban centres. Adoption is much higher in Tier 1 and Tier 2 cities, while rural and Tier 3+ areas continue to lag. The PRB’s broadened mandate, with an explicit focus on inclusion and consumer protection, could be the lever that finally brings digital finance to India’s last mile and ensures it benefits more than just the urban elite.
Importantly, the PRB’s establishment also addresses the regulatory conundrum highlighted by recent events, such as the crackdown on Paytm Payments Bank. The need to harmonise innovation with robust compliance has never been greater, and a specialised regulatory board—potentially evolving into a fully independent payments regulator—offers the sector both the flexibility and the discipline it needs to thrive. The inclusion of subject-matter experts and legal advisers ensures that the board can benefit from expertise in both technological advances and consumer protection.
The regulatory mindset itself seems to be shifting. The RBI’s new framework for regulation-making now requires public impact analysis and stakeholder consultation before finalising rules—a move inspired by global best practices and academic recommendations for “regulation by engagement.” For the first time, India’s payments regulation will be iterative, data-driven, and open to public scrutiny, rather than dictated solely by central bank fiat.
Shifting to a more principle-based, outcome-focused regulatory model—instead of one bound by micromanagement and cumbersome rules—is key to unleashing the next phase of fintech creativity. This approach allows for flexibility in fast-evolving domains such as alternative lending and embedded finance, where new risks and opportunities emerge almost monthly.
India’s own experience with regulatory sandboxes offers valuable lessons. By allowing fintechs to test new products in a controlled environment, the RBI has enabled responsible innovation while minimising systemic risk. The draft framework for self-regulatory organisations (SROs) further signals a willingness to delegate some regulatory oversight to industry bodies and reduce friction.
The data supports the benefits of this regulatory evolution. The Australia-India Council forecasts that fintech could add $950 billion to India’s GDP and generate 21 million new jobs by 2025. These gains go beyond transaction volumes—they reflect deeper financial inclusion, as digital rails and open APIs lower barriers for the unbanked and underserved. The JAM trinity (Jan Dhan, Aadhaar, Mobile) has already brought millions into the formal financial system, and a more flexible regulatory regime could accelerate this trend, enabling fintechs to design products tailored to rural, informal, and small business segments.
Perhaps most importantly, a reimagined payments regulatory framework can encourage greater collaboration between government, regulators, and the private sector. The creation of UPI, for example, resulted from hackathons, pilot projects, and open dialogue among banks, fintechs, and policymakers.
Payments, as critical national infrastructure, deserve more than a single gatekeeper. If successful, this change will not only future-proof India’s fintech sector but could also serve as a blueprint for other emerging markets grappling with similar digital challenges.
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