To accomplish the goal of financial inclusion, the government is promoting Digital India Payments. Banks and fintech companies are adopting new technologies for super-fast transactions, incentivising digital payments and using data. These are some emerging trends that will further boost the endorsement of digital payments in India.
The Payment and Settlement Act, 2007 has defined Digital Payments as any “electronic funds transfer”, i.e., any exchange of funds which is initiated by an individual by way of instruction, authorization or request to a bank to debit or credit an amount from an account maintained with that bank electronically and incorporates point of sale transfers; ATM transactions, direct deposits or withdrawal of funds, transfers initiated by phones or internet and card payment.
India’s payments framework – especially, the digital payments system – has been advancing heartily over the past numerous years, prodded by advancement in data and communication technology, and fostered and in consonance with the way imagined by RBI. As major aspect of this vision, the National Payments Corporation of India (NPCI) was established in 2008–has been leading the development of the retail payments framework. Critical achievements accomplished in this overall process of development of the payments framework incorporates the introduction of MICR clearing in the early 1980s, Electronic Clearing Service and Electronic Funds Transfer in the 1990s, issuance of credit and debit cards by the banks in the 1990s, the National Financial Switch in 2003 that realized interconnectivity of ATMs the nation over, the RTGS and NEFT in 2004, the Cheque Truncation System (CTS) in 2008, the second factor authentication for the ‘card not present’ transaction in 2009 and the new RTGS with upgraded features in 2013.
Besides, non-bank entities have been presented in the issuance of prepaid instruments (PPI), including mobile and digital wallets. These measures have been complemented by noteworthy initiatives by the NPCI including the launching of grid-wise operations of CTS, interoperability on NACH, IMPS, NFS, RuPay, APBS and AEPS, National Unified USSD Platform (NUUP), UPI and BHIM application. A significant number of these accomplishments, especially given their pan-India coverage, are to be sure outstanding from a cross-country point of view, including the ‘T or T+1’ clearing of cheques empowered by CTS and the clearing house infrastructure, the NEFT, the IMPS, mobile banking/payments and the security part of card payments.
These advancements catch the evolution of the Digital Payments framework in the nation. This was trailed by a noteworthy initiative by Indian Government which set up the Committee of Digital Payments in August 2016 under the Chairmanship of Shri. Ratan P. Watal, Principal Adviser, NITI Aayog.
Post demonetisation in November 2016, the adoption of digital payment methods in India received a major lift. According to NPCI, the value of the BHIM Unified Payments Interface (UPI) transactions soar to INR 1 Tn while the volume of transactions reached 913 Mn, up from just 7 Mn in April 2017.
Likewise, NPCI has now empowered acceptance of JCB debit and credit cards at ATMs and POS terminals in India, through the National Financial Switch and the Rupay Network. JCB is a credit card issuer and acquirer in Japan, with a card acceptance network in around 190 countries and territories, and this dispatch targets sightseers and business voyagers from across Asia. This will permit a worldwide card base of 101 million JCB card members (crosswise over 23 countries and territories) to pay and withdraw cash in India, crosswise over 225,000 ATMs and more than 2 million Point-of-sales terminals, as indicated by a note from the NPCI. Following this partnership, 32 banks will acknowledge JCB cards on ATMs, and two banks on POS terminals. The formal declaration of this launch follows a pilot venture in February with Indian Bank, Union Bank of India and ICICI Bank for JCB credit and debit cards acceptance, and with ICICI Bank and Axis Bank for POS acceptance. However, no target for enabling 100% reach for ATMs and POS terminals has been indicated by the NPCI as of now.
Be that as it may, despite the fact that there is a more prominent craving for digital payments systems, the Indian economy keeps on being intensely reliant on cash. This continued reliance on cash persists because of certain challenges profoundly rooted in the digital payments ecosystem in India. These ground-in issues can be to a great extent ascribed to absence of adequate infrastructure. In the current scenario, digital payment system is intensely dependent on smartphones that are enabled with internet connections, NFC, Bluetooth etc. Out of India’s total 800 Mn mobile phone users, only 200 Mn use smartphones which are enabled with internet and Bluetooth. Of these phones, only 6 Mn are NFC-enabled.
A considerably littler level of users have access to QR code mechanisms. This means approximately 85% Indians who don’t have access to the infrastructure required to embrace the current digital payment framework that are intensely dependent on smartphones. There is a desperate need, therefore, for a progressively interoperable and an all-inclusive technique of digital payments in the country.
Also, the hardware and software required to adopt the current digital payment infrastructure are massive and costly. A ton of retailers are opposing to adopt because of these associated mind-boggling costs and continue to use cash as their medium of exchange. In a developing country such as India, people would preferably carry bulky bank notes over paying extra cost just for using digital payment methods. Demonetisation pushed Indians towards switching to cashless methods which come with aplenty of hidden costs, yet when the weight diminished, Indians were back to utilizing cash.
While the government and digital payment corporations push for a cashless economy, the entice most likely lies within the absence of a convention pertaining to the implementation of digital payment methods. While the technologies are plentiful, their penetration is lagging behind and while many of the innovative start-ups are present that can lessen the cost burden on users, adequate amount of support for their growth is insufficient.
Innovative start-ups that disrupt the prevailing digital payments ecosystem with payment technologies involving low cost adoption models, will level the playing field and promote financial inclusion. There are some innovative solutions that are presently hoping to resolve this gap of technology and utility to make digital payments more and easily accessible.
Government endeavours towards the elevation of these forefront, novel innovations and their orderly penetration among the majority will unavoidably prompt a vastly productive cashless economy. It is necessary to build-up an ecosystem that supports innovative start-ups and players with unique and extraordinary offerings to encourage Indians to grasp a cashless economy