According to recent data from the National Payments Corporation of India (NPCI), the Bharat Interface for Money-Unified Payments Interface (BHIM-UPI), simply known as UPI, surpassed 2 billion transactions in a single month in October 2020. The substantial increase can be attributed to various factors, including a surge in digital transactions during the COVID-19 lockdown and the ample convenience provided by the platform in handling utility bills.
UPI: The Leading System of NPCI
Presently, UPI is the largest system operated by NPCI, outpacing others like the National Automated Clearing House (NACH), Immediate Payment Service (IMPS), Aadhaar enabled Payment System (AePS), Bharat Bill Payment System (BBPS), RuPay, and more. The pandemic-related lockdown accelerated the shift towards digital transactions, with UPI transactions exceeding the 200 crore-mark.
RBI’s Advice Amid Pandemic
To curb the spread of the coronavirus through physical currency exchange, the Reserve Bank of India (RBI) urged the use of digital payments. This advice steered businesses towards accepting predominantly prepaid orders, consequently boosting digital transactions. Moreover, the ease of paying utility bills and occasional cashback offers might have swayed people towards digital transactions, establishing a new norm.
Growth Predictions for India’s Digital Payment Industry
Predictably, India’s digital payments industry could soar from Rs. 2,153 trillion to Rs. 7,092 trillion by 2025, expanding at a compounded annual growth rate of 27%. This anticipated growth will likely be driven by strong use cases of merchant payments, government initiatives like Jan Dhan Yojana, the personal data protection bill, MSME growth, increasing millennial population, and widespread smartphone penetration.
Challenges Facing Digital Payments
However, the digital payments landscape is not without challenges. The global banking and financial services industry has witnessed an uptick in cybercrime amidst the coronavirus pandemic. Fraudulent claims, chargebacks, fake accounts, promotion abuse, account takeover, identity theft, card detail theft, and triangulation frauds are emerging as significant concerns.
About NPCI
NPCI, an umbrella organisation for managing retail payments and settlement systems in India, was initiated by the RBI and Indian Banks’ Association. It functions under the provisions of the Payment and Settlement Systems Act, 2007. As a “Not for Profit” Company, it aims to equip the entire Indian banking system with essential physical and electronic payment and settlement infrastructure.
NPCI Operated Systems: An Overview
NPCI operates various payment systems, including BHIM-UPI, an initiative to enable fast, secure, reliable cashless payments via mobile phones. The AePS allows users to conduct transactions on Micro-ATM using only their Aadhaar number and fingerprint/iris scan. It also operates the National Electronic Toll Collection (NETC) system that collects toll electronically, the NACH service facilitating interbank high-volume low-value debit/credit transactions, the IMPS offering instant interbank electronic fund transfer via mobile phones, and BBPS, a unified bill payment system.
Way Forward
To further the reach of digital transactions, government initiatives, such as digitisation education, digital rewards, and incentives, coupled with customer-centric innovations in financial transactions, are crucial. Simultaneously, financial institutions must converge anti-money laundering, fraud, and cybersecurity processes. This strategy involves increased information sharing, stringent due diligence requirements, and investment in maintaining and strengthening defences.