The Reserve Bank of India has put together a five-member committee to recommend methods for enhancing digital payments. The team, led by Nandan Nilekani, will submit its recommendations in 90 days from its initial meeting. The panel’s terms of reference are evaluating the current levels of digital payments in financial inclusion, suggesting steps to bolster the safety and security of digital payments, providing a strategy for boosting customer trust in digital transactions, and recommending a medium-term scheme for intensifying digital payments.
According to a report by Credit Suisse on India’s financial sector, cash still makes up an estimated 70% share in value terms. Digital payments currently total only $200 billion, compared with mobile payments of $5 trillion in China. Integrating payment into popular apps is one strategy to boost digital payments.
Historical Background on Digital Payments
In August 2016, the government established a Committee on Digital Payments to examine the country’s payment systems. Chaired by Ratan P. Watal, the committee recommended appropriate measures to encourage digital payments. Over the last few years, electronic forms of payment such as debit and credit cards, mobile wallets, real-time gross settlement (RTGS), national electronic funds transfer (NEFT), and Unified Payments Interface (UPI) have seen a significant rise. The growth of these platforms, especially following the government’s demonetization exercise in November 2016, is evident.
One of the latest modes of digital payments, the Unified Payment Interface (UPI) which launched in 2016, has seen over 300% growth in transaction volumes in the last year. This growth trend is set to continue in the near future.
Understanding Digital Payments
According to the Payment and Settlement Act, 2007, a digital payment refers to any electronic funds transfer initiated by an individual through a bank instruction, order, or authorization. These transfers include point of sale transfers, automated teller machine transactions, direct deposits or withdrawal of funds, telephone-initiated transfers, internet transactions, and card payments.
Types of Digital Payments
Some types of digital payments available in India include:
– Unified Payment Interface (UPI): used for fund transfers through mobile apps.
– Aadhaar Enabled Payment Service (AEPS): an Aadhaar-based digital payment mode requiring only the customer’s Aadhaar number.
– E-Wallets: digital versions of physical wallets with increased functionality.
– Cards: the most commonly used mode for transferring funds and making digital payments.
– Unstructured Supplementary Service Data (USSD) banking (or *99# Banking): a digital payment mode based on mobile banking that does not require a smartphone or internet connection.
Factors to Consider While Using Digital Payments
When using digital payments, there are several important factors to consider:
– Contactless Payment: allows for fast, safe purchases especially for low-value transactions.
– Distributed Ledger Technology: banks and FinTechs are exploring blockchain technology to provide faster, less expensive, and more efficient services.
– Cybersecurity Regulations: due to the rising frequency and intensity of cyberattacks, regulators are focusing on compliance with current cybersecurity and data privacy laws.
Digital Payments Facts
| Most Common Digital Payment Method | Cards |
| Largest Market Share in Value Terms | Cash (70%) |
| Fastest Growing Digital Payment Method | Unified Payment Interface (UPI) |
| Global Comparison (India vs China) | $200 Billion vs $5 Trillion |
Global tech giants reshaping the future of Digital Payments in India
The digital payments ecosystem in India is transforming with the entry of global tech companies that act as aggregators for retail transactions. For example, Google’s payment app, launched just four months prior, is already processing a large volume of digital transactions. Measurement of Digital Payments becomes extremely important to monitor progress. It is essential to study the different components of digital payments, compare them with global best practices, and come up with universally acceptable indicators relevant in the current context.
