August , 2022
Digital Payments: The Road Ahead
21:08 pm

Saptarshi Roy Bardhan

The digital payment infrastructure in India has leapfrogged to a stupendous height. It all began in the 1990s whenReserve Bank of India (RBI) spearheaded the development of technological infrastructure that facilitated the creation of a payment and settlement ecosystem. In 2007, the Indian parliament passed the Payment and Settlement Systems Act, after which RBI released a series of vision documents for the periods of 2009–12, 2012–15, and 2015–18. These papers were supplemented by initiatives to promote wider acceptance and deeper penetration of electronic payments in India.

The real big push for digital payment came after the demonetisation in 2016. In the Unified Payment Interface (UPI), the flagship digital payment platform, which was launched in 2016, transactions have been growing month-on-month. It crossed 1 billion transactions for the first time in October 2019, almost three years after its launch. And, the next billion came in under a year, in October 2020. In the next 10 months i.e. in August 2021, UPI processed 3 billion transactions. And, it took only three months for the payments platform to reach 4 billion transactions per month. Add to it, the positive traction received from measures like the introduction of Real Time GrossSettlement (RTGS) in 2004, National Electronic Funds Transfer (NEFT) in 2005 and Immediate Payment Services (IMPS) in 2010 in expanding payment digitisation.


With the onset of the Covid-19, digital payment received renewed thrust since 2019 leading to a dramatic increase in contactless and online payments. While technology played a significant role, the industry and society in general have been undergoing a major behavioural transformation towards facilitating digital payments. The efforts and spending of BigTech and FinTech companies for initial onboarding of customers for facilitating payment transactions are also worth a mention. Data shows an increase of more than 500% in merchants accepting digital payments during the half-year ended September 2021 as compared to the half-year ended in March 2019. Total digital payments, on the other hand, have increased by 216% and 10% in terms of volume and value, respectively, for the month of March 2022 when compared to March 2019.


Looking at the developments and the traction in the ecosystem it is evident that digital transactions are going to be a significant part of the overall payment system with passage of time. Firstly, it helps in making the system less cashless which in a way is a deterrent to money laundering and secondly, in crunching time and cost vis-à-vis physical transactions.    


Recently RBI has published the Payments Vision 2025 report which has a core theme “E-Payments for Everyone, Everywhere, Everytime (4 Es)”.  This contains a roadmap of activities in the payments space till 2025 presented across the five anchor goalposts of Integrity, Inclusion, Innovation, Institutionalisation and Internationalisation.  


Various initiatives proposed under the above five goalposts shall have the following ten expected outcomes during the Vision period:


i. Volume of cheque-based payments to be less than 0.25% of the total retail payments;

ii. More than 3x increase in number of digital payment transactions;

iii. UPI to register average annualised growth of 50% and IMPS / NEFT at 20%;

iv. Increase of payment transaction turnover vis-à-vis GDP to 8;

v. Increase in debit card transactions at PoS (point of sale) by 20%;

vi. Debit card usage to surpass credit cards in terms of value;

vii. Increase in PPI (prepaid payment instrument) transactions by 150%;

viii. Card acceptance infrastructure to increase to 250 lakhs;

ix. Increase of registered customer base for mobile based transactions by 50% CAGR; and

x. Reduction in Cash in Circulation (CIC) as a percentage of GDP.


Another area where the growth looks imminent is the contactless payment. This is of course a subset of the entire digital payment space. Visa Inc., the payments giant recently published a white paper which focussed explicitly on this piece. Though the share of contactless in the country grew by more than six times (2.5% in December 2018 to 16% December in 2021) it still has a long way to go compared to countries like Singapore, Australia which have already clocked 70-80% in this channel.


Contactless payments include all forms of cashless transactions that do not require swiping of cards or keying in of 4-digit PIN at the PoS. These payments may be made by NFC (Near field communication) enabled card, mobile wallets, UPI, scanning of QRs etc. Good thing is that due to a large scale of adaptability of the customers for contactless at PoS like restaurant, retail mart, gas station, transportation, entertainment, utilities etc. major banks are also expanding their contactless product portfolio through virtual and contactless cards. This may be attributed to the decision of RBI to increase the limit for such transactions to `5000/- in January 2021 from its previous level of `2000/- and the availability of PoS machines around the country at the merchant end.


While the ease of digital transaction is obvious, the security and safety of the transaction is still a concern in the Indian mindset. At this juncture the role of RBI and National Payments Corporation of India (NPCI) becomes more important. Like the past decade has witnessed the blossoming payment systems, all for the convenience of the common man with enhanced levels of confidence through various safety and security measures, now the journey to the next level needs to be handled by these institutions with equal dexterity.


The author works for Peerless Financial Services Ltd.


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