Trends, Issues and Opportunities in Digital Payments

Digital Payments – Definition

The Payment and Settlement Act, 2007 has defined Digital Payments. As per this any “electronic funds transfer” means any transfer of funds which is initiated by a person by way of instruction, authorization or order to a bank to debit or credit an account maintained with that bank through electronic means and includes point of sale transfers; automated teller machine transactions, direct deposits or withdrawal of funds, transfers initiated by telephone, internet and, card payment.

Summary Trends

• Over 26 crore digital payment transactions are processed daily by our payment systems, of which Unified Payments Interface (UPI) system itself processes more than two-thirds.
• In terms of share of transactions, Unified Payments Interface (UPI) is the dominant system, contributing 68% of payment systems transactions with over 5.4 billion transactions in March 2022.
• India has over 150 million digital PoS terminals (QR codes) that facilitate acceptance of digital payments through cards, e-Money and UPI.
• The entry of small businesses into digital payments. Data shows an increase of more than 500% in merchants accepting digital modes of payments during the half-year ended September 2021 as compared to half-year ended March 2019; in case of UPI alone, there is an increase of more than 1200% over the same period. 
• The Reserve Bank had announced construction of a composite Reserve Bank of India – Digital Payments Index (RBI-DPI) with March 2018 as base to capture the extent of digitisation of payments across the country. The index for March 2022 stands at 349.30 as against 304.06 for September 2021, which was announced on January 19, 2022.

Key Drivers for Digital Payments

• In the Volume segment, the key drivers of Digital Payments are Debit Cards, PPIs and IMPS. The volume of UPI segment is also increasing
• In the Value segment, the key contributors of Digital Payments are RTGS and NEFT

Policy Initiatives

• In the Union Budget 2017-18, major policy announcements were made by the Hon’ble Finance Minister for promoting Digital Payments.
• Ministry of Finance has taken a major initiative in drafting a Bill for amendment of Payment and Settlement Systems Act, 2007, as envisaged in the Report of the Committee on Digital Payments 2016
• RBI has taken four major policy initiatives.
• National Electronic Funds Transfer (NEFT) system – Settlement at half-hourly intervals
• Master Directions on Prepaid Payment Instruments (PPIs)
• Rationalisation of Merchant Discount Rate
• Storage of Payment System Data
The impact of these initiatives on Digital Payments will be assessed in due course.

Opportunities

• Digital Payments offer unique opportunities. The Global trends indicate heightened customer expectations for value-added services, increased competition due to the emergence of FinTechs, new technologies, and an ever-changing regulatory landscape
• These emerging global trends is expected to impact the Indian Digital Payments ecosystem and provide impetus to the growth of Digital Payments.

Emerging Global Trends

1. Alternate payment channels such as contactless and wearables gain acceptance
2. Banks and FinTech’s explore distributed ledger technology to transform cross-border payments.
3. Instant payments processing likely to become the ‘new normal’ for corporate treasurers, industry at large.
4. As global cyberattacks rise, regulators focus on data-privacy law compliance.
5. Infrastructure rationalization is likely as payments intermediaries come together or evolve .

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Source : NITI Aayog