Revised Framework On Domestic Money Transfer

The framework for Domestic Money Transfer (“DMT”) was initially introduced by the Reserve Bank of India (“RBI”) vide its notification dated October 5, 2011^[1] (“DMT Framework”) due to receipt of numerous requests to expand formal banking options for small-value fund transfers, with monthly limits and monitoring, in order to promote financial inclusion. 

Following this, RBI announced the revised framework on July 24, 2024^[2], to be effective from November 1, 2024 (“Revised Framework”), aimed at enhancing the DMT system established in 2011. Under the Revised Framework, RBI noted that since the DMT Framework, there has been a notable increase in the number of banking outlets, advancements in payment systems for fund transfers, and ease in fulfilling of Know Your Customer (KYC) requirements. As a result, users now have access to a variety of digital options for transferring funds. RBI conducted a review of the existing services under DMT Framework, and accordingly announced the Revised Framework. This article seeks to cover the Revised Framework and outlines the measures signifying the changing landscape of digital payments, the need for greater efficiency and transparency to improve the security of the DMT system. 

significance of the revised framework

The DMT Framework earlier permitted only banks^[3] to initiate DMT in the country subject to adherence of KYC/ Anti-Money Laundering (AML) guidelines. However, the new/updated measures taken by RBI are aimed at promoting financial inclusion, enhancement of financial security and streamlining monetary transactions, by providing for the following:

1. Cash Payouts: The remitting banks are required to obtain and maintain records of the name and address of the beneficiaries.Such enhanced KYC record-keeping is intended to bolster transparency and diminish the likelihood of fraudulent transactions.

1. Cash Pay-in Service: 

   1. Remitting banks / Business Correspondents (BCs) are mandated to register the remitter based on a verified cell phone number and a self-certified ‘Officially Valid Document (OVD)’, being apassport, driving licence, voters’ ID card, PAN card, Aadhaar Card (as issued by Unique Identification Authority of India) etc. This measure is intended to establish a more robust framework for the identification and verification of individuals engaged in money transfer transactions.

1. Every transaction by a remitter must be validated by an Additional Factor of Authentication (AFA), being SMS-based OTP. The AFA which is an additional layer of security is anticipated to substantially decrease the risk of unauthorized transfers and safeguard end users against potential financial fraud.

1. Remitting banks and their BCs are required to conform to the provisions of the Income-tax Act, 1961 and the rules / regulations framed thereunder (as amended from time to time), pertaining to cash deposits, such as the cash deposits aggregating to ten lakh rupees or more in a financial year, in one or more accounts (other than a current account and time deposit) of a person. If such threshold for the cash deposit limit is crossed then the banks are required to report the excess transactions to the Income Tax Department. Such mandates assists in aligning the DMT framework with overarching financial regulations and aids in the prevention of money laundering activities.

1. Remitter bank is mandated to include remitter details as part of the Immediate Payment Service (IMPS) / National Electronic Funds Transfer (NEFT) transaction message, which will enhance the traceability of transactions and aids in monitoring. 

1. The transaction message shall include an identifier to identify the fund transfer as a cash-based remittance, ensuring transparency.

Additionally, regarding the card-to-card transfer as specified under the DMT Framework are excluded from the purview of the Revised DMT Framework and will be governed under the guidelines / approvals granted for such instruments, being debit/credit/pre-paid cards. All other instructions as per the DMT Framework including the limits in size of transactions will continue to be applicable, which are as follows:^[4]

1. Liberalising the cash pay-out arrangements for amounts being transferred out of bank accounts to beneficiaries not having a bank account and enhancing the transaction cap from the existing limit of INR 5,000 to INR 10,000 subject to an overall monthly cap of INR 25,000 per beneficiary.

1. Enabling walk in customers not having bank account (for instance migrant workers) to transfer funds to bank accounts (of say family members or others) subject to a transaction limit of INR 5,000 and a monthly cap of INR 25,000 per remitter.

Conclusion

The recent revisions to the DMT Framework as outlined in the Revised Framework represent a significant step forward in enhancing the accessibility and security of DMT services in India and preventing fraudulent transactions and money laundering. For instance,  the increasing exploitation of DMT networks by fraudsters poses significant challenges for the industry and raises concerns among law enforcement agencies. Major BCs are facing account freezes by cybercrime police across various states, as their platforms are being misused for illicit fund transfers. Fraudsters are utilizing payment mechanisms such as DMT to channelize money through agents who exploit the settlement accounts of these corporations, further complicating the situation.The ongoing threat of fraudsters taking control of accounts belonging to vulnerable individuals, such as the unprivileged, highlights the need for enhanced safeguards^[5]. 

RBI through its Revised Framework has taken a crucial step aiming to preventand protect both consumers and legitimate businesses from the repercussions of financial crime. The Revised framework addresses the lacunas in the existing framework and provides enhanced security measures to prevent unauthorised transfers and fraud transactions. 

Additionally, the Revised Framework offers significant advantages to stakeholders, i.e., banks, non-banks, BCs, and, most importantly, the end-users. By establishing a streamlined structure for financial transactions, the Revised Framework mandates adherence to KYC compliance guidelines, the procurement of verified information, and the implementation of additional layers of security. These measures collectively enhance operational integrity, facilitate transaction validation, and foster customer trust in availing DMT services. As a result, the Revised Framework not only strengthens the security and reliability of financial transactions but also promotes a more inclusive and accessible banking environment for all stakeholders involved.