Research on Fastags in India and Regulatory Regime

RBI in December 2019 allowed the linking of UPI and Pre-paid Instruments like Smart Cards
for payment of tolls by linking them with Fastags. The transaction process flow of Fastag is
covered here.
Regulatory Requirement, Responsibilities and Procedural Framework for issuance of
Fastags
Banks have to register with National Payments Corporation of India (NPCI). This is because
the NETC Procedural Guidelines prescribe that the ‘Issuer Bank’ will have to be a member of
the NPCI. An ‘Issuer’ is defined as a member of NPCI and one who issues the NETC Tag to
vehicle owner for the payment through NETC System.
There are certain responsibilities to be performed by issuers who are registered with the NPCI.
These can be accessed from Page 46 of the NETC Network Procedural Guidelines.
Relevance of PPIs in Fastag
Operating Payment Systems in India is the sole prerogative of the RBI which it governs under
the Payment and Settlement Systems Act of 2007. Under that enactment, it has authorised a
list of payment system operators to operate in India, which can be accessed here. As per the
RBI Notification in December 2019, all authorised payment systems can be linked with Fastag,
these do not have to be linked with any bank (examples: AmazonPay, PhonePe). Therefore,
while the issuing can only be done by a member of NPCI, the payment can be completed by
any of the PPI-authorized platforms.
Why is Paytm the largest issuer of Fastags in India? Advantages of Paytm Fastag.
News reports which can be accessed here, suggest that Paytm Payments Bank is the largest
issuer because of the fact that it is partnering up with automobile manufacturers to have pre-
fitted Paytm Fastags during the purchase of the vehicle. Further, the Paytm ecosystem doesn’t
require the creation of a separate prepaid account and the money on tolls can be paid from the
wallet which is used for other expenditure. This is in contrast to PhonePe, which requires
adding money to the Fastag account. This is because PhonePe is largely UPI-based, which has
to be linked with the Fastag issuer bank (the procedure for recharging Fastag by PhonePe is
given here.)
In fact the RBI has noted itself in its Booklet on Payment Systems (accessible here), under
Paragraph 26.3, that FinTech firms have leveraged the utility of the existing platforms to offer
a bouquet of innovative payment solutions to widen the reach, enrich user experience and
simultaneously enhance retail payments.
Who holds customer information/KYC data vis-à-vis Fastag?
As per the Procedural Framework, the issuance of KYC and other related-procedures are to be
done and performed at the end of the issuer. Under Section 4.6.1 and 4.7 (Page 50 of the
Procedural Framework), the KYC has to completed at the end of the issuer of the NETC
Fastag. No separate KYC requirement exists at the end of IHMCL or NHAI (Page 111).