Following a major instance of fraud at a leading public-sector bank, RBI has banned the issuance of Letters of Comfort (LoC) and Letters of Undertaking (LoU), which are the two main instruments of trade finance. The move, which came into effect on 13 March 2018, could push up the cost of imports by half a percentage point. The ban may adversely affect corporates with long working capital cycles. However, the regulation may result in creating a level playing field for foreign banks that were earlier outpriced by Indian banks.
Traditional banks must evaluate their place within the payments ecosystem and be open to partnering with FinTechs and third-party developers to drive value collaboratively.
Structural changes are spurring payments industry participants to evaluate the future of the business as well as their role in the months and years ahead.
The Payment Services Directive 2 or PSD2 has been in full force for more than six months, and its impact is being felt not just in the European Union, but across the globe – with several markets, such as Singapore, Australia, and Nigeria, as well as Hong Kong announcing open banking initiatives inspired by the PSD2