India's Digital Payments Revolution- A Case Study for the World

22 Jul 2022 , 12:15 PM

India has made a giant leap from the year 2015 when Prime Minister, Narendra Modi announced the flagship program of Digital India on July 1st, 2015. The start of Digital India which envisioned Digital infrastructure and enhanced internet connectivity has reached a pinnacle with Digital payments driving economic growth and a digital revolution in just 7 years.
India emerges as a leader.

According to a recent report by ACI Worldwide India leads worldwide in real-time transactions at 48 billion, almost three times to that of China at 18 billion, and 6.5 times greater than transactions of the US, UK, Canada, and Germany. The RBI’s Digital Payment Index is based on broad parameters and factors that marked the growth of digitization of payments by almost 40% in September 2021. There is a rapid rise in cashless transactions which constitute a whopping $2 trillion leveraging Point of Sale (PoS), UPI, apps, mobile wallets, and other forms.

Factors that boosted Digital Payments

The accomplishment of the Cashless Payment Ecosystem has not come easy. With Government policies that focused on strengthening digital infrastructure, an upsurge in the use of smartphones along with inexpensive internet rates, seamless connectivity, and technological innovations have contributed to the achievement of India becoming a robust digital economy. The UPI (Unified Payments Interface), the centralized facility, based on the Immediate Payment Service (IMPS) has played a major role in boosting the adoption of instant transfer of funds digitally.

With a motive to achieve the goal of a billion transactions per day the National Payments Corporation of India (NPCI) has laid guidelines to incorporate the three zero approach – zero-touch, zero time, and zero cost to benefit the customer in terms of time, cost and ease of performing the transactions. The innovation in terms of data storage, speed, and safety involved aims at achieving the completion of a financial transaction in just 5 seconds.

Role of the Pandemic

The Pandemic played an enormous role in enabling the progress of cardless and cashless transactions owing to the necessity of steering the businesses without visiting the banks or ATMs. Online Education industries witnessed an expansion due to the shutting down of schools and colleges.

Online purchases, tap-to-pay, QR codes, and touchless disbursements, due to health and safety concerns were catalysts resulting in the acceptance of digital payments. As per the RBI, digital payments increased by 216% for March 2022 compared to March 2019.
In another report, Digital payments post-pandemic in 2022 were recorded at a total of over 239 billion Indian rupees compared to only 20.7 billion rupees in 2018. This growth is phenomenal and unprecedented.

RBI’s Payments Vision 2025

The Payment Vision 2025 of RBI observes Providing every user with Safe, Secure, Fast, Convenient, Accessible, and Affordable e-payment options under its Core Theme of 4Es- E-payments for Everyone, Everywhere, every time. This Payments Vision 2025 document is presented across the five anchor goalposts which are briefly discussed here
 
Integrity– To reinforce customer confidence, the apex bank aims at non-negotiable integrity of payment systems, which pertains to authentication mechanisms, fraud monitoring, and reporting, and the creation of the Digital Payments Protection Fund (DPFF) to name a few. 

Inclusion– Having adapted to Digital methods of payment, there is a spike of 50% in mobile banking users. The vision aims at providing inclusive access irrespective of digital literacy to help businesses across the country operate seamlessly and bring first-time users into the digital fold. It also ponders over making this shift an irreversible one. 

 Innovation– Regulation of significant intermediaries in the digital payment ecosystem and migration of all RBI-operated payment system messages to highly structured and data-rich ISO 20022 standards as adherence to international standards for transmitting electronic messages between different financial institutions. Institutionalization – Constitution of a Payments Advisory Council (PAC) to assist the board in regulation and supervision and review of the Payment and Settlement Systems Act ( PSS) which was established in 2007. 

Internationalization– To bring efficiency by incorporating Two Factor Authentication (2FA) for cross-border pacts and also strive towards global outreach of RTGS, NEFT, UPI, and RuPay cards to improve trade and commerce and reduce time and cost for remittances. 

India’s Digital Payment Revolution is a case study for the world as it strides forward towards economic development and financial stability. With specific initiatives and goals laid down, the RBI has built a dynamic ecosystem, based on technology and innovation, and its emphasis on customer-centricity. The statistics of digital transaction volumes exhibit the efforts and confidence in the safe and effective transformation towards a digitally empowered economy. 

The author is Mr Rohit Ramana, Co-founder & Chief Financial and People Officer, Mintoak Innovations Pvt Ltd.  Views expressed are his own.