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 During 2021-2024, digital payment methods registered a compound annual growth rate (CAGR) of 49.9 per cent in volume terms and 14.1 per cent in value terms. At end-March 2024, in terms of value, 97.1 per cent of the total payments were through digital mode. Over 50 crore digital payment transactions are processed daily by our payment systems, of which Unified Payments Interface (UPI) system is a key contributor. The Unified Payments Interface (UPI) has the majority share in volume of transactions, while real time gross settlements (RTGS) accounted for the largest share in terms of value. India has over 660 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. The average value of retail digital payments has reduced from Rs 8,769 in March 2021 to Rs 4,560 in March 2024, with growing popularity of digital modes for small value payments. The Reserve Bank launched a composite Digital Payments Index in January 2021 to measure the progress of digitalisation and assess the deepening and penetration of digital payments comprising five broad parameters: payment enablers; payment infrastructure – demand-side factors; payment infrastructure – supply-side factors; payment performance; and consumer centricity. At end-March 2024, the index stood at 445.5 compared to 395.6 a year ago, driven by significant growth in payment performance and payment infrastructure across the country. Key Drivers for Digital Payments In the Volume segment, the key drivers of Digital Payments are UPI, Debit Cards, PPIs and IMPS. 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 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 Bharat Bill Payment System (BBPS) - an integrated bill payment system, offers interoperable and convenient payment services to customers. 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 Alternate payment channels such as contactless and wearables gain acceptance Banks and FinTech’s explore distributed ledger technology to transform cross-border payments. Instant payments processing likely to become the ‘new normal’ for corporate treasurers, industry at large. As global cyberattacks rise, regulators focus on data-privacy law compliance. Infrastructure rationalization is likely as payments intermediaries come together or evolve . Related sources To access the NITI Aayog digital payment booklet, click here.