Digital Payments Infrastructure A Critical Component Of The Digital Economy

B S Purkayastha

The next big step in the Digital India revolution will be the introduction of governmentmandated digital rupee. India's digital economy is expected to witness exponential growth to $800 billion by 2030 on the back of rising internet penetration and increasing income, Finance Minister Nirmala Sitharaman had said recently in her address to the IIT Bombay Alumni Association. Again, last month Electronics and Information Technology Minister Ashwini Vaishnaw said BHIM-UPI has emerged as the preferred payment mode in the country and achieved a record of over 461.71 crore digital payment transactions having value of Rs 8.31 lakh crore in January 2022. Earlier, the Minister had tweeted that India recorded 25.4 billion real-time online transactions in 2020-that's 1.6 times compared to the 15.7 billion digital transactions in China and over 21 times the 1.2 billion transactions seen in the United States.

These statements indicate the importance of the digital economy, and especially digital payment infrastructure, in the development of the country. India's digital consumer base is the second largest in the world and growing at the second-fastest rate amongst major economies. Its inclusive digital model is narrowing the digital divide within the country and bringing the benefits of technology to all segments of people. The country has emerged as a world leader in fintech and digital payments innovation. Today it has over 6,300 fintechs, of which 28% are into investment technology, 27% into payments, 16% into lending, and 9% into banking infrastructure, while over 20% are into other fields. The common Indian has shown immense trust in the Fintech ecosystem by embracing digital payments and it can be reasonably assumed that we will continue to make big strides in this sector.

Boost to digital payments

The digital payment landscape in India has seen a series of new products, each more transformative than the other. Indian consumers have also embraced every new payment system, showing their tremendous affinity for digital technology leading to rapid growth of the digital payment infrastructure. Digital payment transactions have witnessed tremendous growth in the country during the last three years. Easy and convenient digital payment modes such as Bharat Interface for Money-Unified Payments Interface (BHIM-UPI), Immediate Payment Service (IMPS), Prepaid Payment Instruments (PPIs), NETC (National Electronic Toll Collection) have registered substantial growth and have transformed digital payment ecosystem by increasing Person to Person (P2P) as well as Person to Merchant (P2M) payments. At the same time, existing payment modes such as Debit Cards, Credit Cards, NEFT (National Electronic Funds Transfer), RTGS (Real-Time Gross Settlement) have also grown at a fast pace.

The total number of digital payments undertaken in the country during the last three years and current year is given below:

Source: RBI, NPCI & Banks # Note: Digital Payments modes considered: BHIM-UPI, IMPS, NACH, AePS, NETC, Debit cards, Credit cards, NEFT, RTGS, PPI and others. * Provisional data (till Feb 6, 2022)

This translates into a 115 percent growth in the number of digital transactions registered within the span of four years. As per data sourced from National Payments Corporation of India (NPCI) and RBI, there has been a growth of 19 times in overall digital transactions during 2020-21, over a span of seven years. Also, Aadhar Enabled Payment System (AePS) inter-bank transactions during FY 2020-21 registered ninefold growth, over the past four years.

India's own payment platform UPI has emerged as the country's favourite digital payment option, with over 22 billion transactions registered during FY 2020-21, showing four times growth over the last three years. In fact, several countries across the world are trying to emulate the success of UPI in their own countries. Recently, National Payments Corporation of India (NPCI), which developed UPI, said Nepal shall be the first country outside of India to adopt UPI as its digital payments platform. By July 2022, the Reserve Bank of India (RBI) will link UPI with Monetary Authority of Singapore's (MAS) PayNow, facilitating instant, low-cost cross-border payments between India and Singapore.

Advantages of digital payments

The benefits of digital payments are many:

i.                    Instant and convenient mode of payment: Unlike cash, money can be instantaneously transferred to beneficiary account using digital modes like BHIMUPI, IMPS. Moreover, using BHIM-UPI mode, one can enable the digital transaction via the mobile phone with an email type address called VPA (Virtual Private Address).

ii.                  Increased financial inclusion: For enabling digital payment, an individual requires bank account where from he can make or accept the payment. Hence, by adopting the digital payment, more unbanked persons are brought under the banking system.

iii.                Increased acceptance during COVID-19 pandemic: The Covid-19 pandemic has taught us the benefit of digital payments, its role in enabling health care. Equipped with contactless payment modes like UPI QR code, NFC (Near Field Communication) enabled cards, digital payments is complimenting the "new normal" of social distancing. During the pandemic and the subsequent lockdowns, digital payments helped keep the economy running with online payments jumping manifold.

iv.                Fostering Innovation in Payments: BHIM-UPI is utilising a set of standard APIs (Application Programming Interface) to facilitate the next generation online immediate payments leveraging trends such as increasing smartphone adoption, Indian language interfaces and universal access to Internet and data.

v.                  National Electronic Toll Collection (NETC): National Electronic Toll Collection (NETC) system enables the customer to make the electronic payment at NETC enabled toll plaza on the highway without stopping at the toll using RFID (Radio Frequency Identification) Technology. The volume of NETC transaction has increased from 74.1 lakh in April 2017 to 2,310.1 lakh in January 2022.

vi.                Bharat Bill Payment System: Bharat Bill Payment System (BBPS) provides an interoperable and easily accessible recurring and bill payment service to consumers via multiple channels like Internet Banking, Mobile Banking, Mobile Apps, BHIM-UPI, etc. At present, billers from 20 categories across India are being on-boarded on BBPS. BBPS has witnessed significant growth in past few years, volume of BBPS transaction has increased from 7.6 lakh in October 2017 to 627.1 lakh in January 2022.

vii.              Faster adoption of QR Code Technology: Post demonetization, the acceptance infrastructure for QR codes has seen tremendous growth. As a result, QR based payments are rapidly increasing. One can simply scan a QR code to pay bills for utilities, fuel, grocery, food, travel, and several other categories.

viii.            Improved speed and timely delivery: In contrast to a cash payment that travels at the speed of its carrier, digital payments can be virtually instantaneous, regardless of whether the sender and receiver are in the same town, district, or country.

ix.                Increased transparency in government system: Earlier cash payments were subject to "leakage" (payments that do not reach the recipient in full) and "ghost" (fake) recipients, particularly in the context of social security benefits by government transfers. Now, the benefits are directly transferred to target beneficiary (Direct Benefit Transfer) account through digital modes of payments. During FY 2021-2022 transaction of value of Rs 4.6 lakh crore under 312 schemes have been made through DBT.

x.                  Safe & Secure: Recipients of cash payments not only often have to travel considerable distances to receive their payments, but also are particularly vulnerable to theft. Digital payments are much safer - multiple levels of authentication are required for making transactions.

xi.                Globalisation of Digital Payments: India's indigenously developed BHIM-UPI (Bharat Interface for Money-Unified Payments Interface) and Rupay cards are world-class platforms for enabling digital payments. Global tech-giant, Google has also recommended India's UPI-like platform to US Federal Reserve for digital payments.

xii.              Lending: Digital payments increase citizen's access to formal financial services including credit. Small-scale entrepreneurs often have limited access to formal credit. Banks and new lending companies are able to review digital transaction history, and offer loans to citizens. xiii. Promotion of Fintech: Fintech has played a key role in the growth of digital transactions by enabling transparent, secure, swift and cost-effective mechanism benefitting the entire digital payment ecosystem. Fintech has transformed digital payment ecosystem by increasing Person to Person (P2P) as well as Person to Merchant (P2M) payments.

Bridging the digital gap in rural India

While much of the spotlight is on digital transactions via the mobile phone, there is a large section of people, especially in rural areas, who depend on Common Service Centres (CSCs) to facilitate their online transactions. These online transactions span a variety of services but all of them ride on the digital infrastructure network. The details of different key services availed at CSCs during 2017-18 to 2019-20 are given below:

No. of Transactions availed at CSCs (in Lakh)

Source: CSC Portal

Various initiatives have been taken by the government for promotion of digital payments in rural areas, including launch of convenient digital payment modes like BHIM Aadhaar, AEPS and *99#. The *99# is a USSD (Unstructured Supplementary Service Data) based mobile banking service from NPCI. Banking customers can avail this service by dialing *99# on their mobile phone and transact through an interactive menu displayed on the mobile screen (available only for live TSPs). Key services offered under *99# service include, sending and receiving interbank account to account funds, balance enquiry, setting / changing UPI PIN besides host of other services. *99# service is currently offered by 83 leading banks and all GSM service providers and can be accessed in 13 different languages including Hindi & English. *99# service is a unique interoperable direct to consumer service that brings together the diverse ecosystem partners such as Banks & TSPs (Telecom Service Providers), banking services to the customers at large over the mobile phones (basic as well as smartphone).

To make digital payments ubiquitous in rural India and nudge the country towards a "less-cash" economy, the government has been taking several steps for the promotion of digital payments in rural areas, including awareness initiatives. These are:-

1. Pradhan Mantri Gramin Digital Saksharta Abhiyan (PMGDISHA): Ministry of Electronics & IT (MeitY) has undertaken PMGDISHA for digital literacy in rural India. The training imparted under PMGDISHA scheme includes creating awareness on various modes of digital payments.

2. Digital Payment Awareness Camp: RBI has advised Banks to conduct special camps through their Financial Literacy Centres (FLCs), for two camps per month on "Going Digital" through UPI and *99# (USSD) and tailored camps for different target groups; viz., farmers, Micro and Small entrepreneurs, school children, Self Help Groups and senior citizens. Rural branches of banks are required to conduct one camp per month on digital payments.

3. Centre for Financial Literacy (CFL) Project: Centres for Financial Literacy have been set up at the block level, for exclusive focus on financial literacy. The pilot project was initiated by RBI and is being scaled up across the country in phased manner. Awareness about digital payments is one of the key areas covered under the project.

4. Financial literacy training programmes: Training programmes have been undertaken by National Payments Corporation of India (NPCI), for creating awareness about financial literacy and digital payments in rural areas.

5. Aadhaar Enabled Payment System (AEPS): AEPS and BHIM Aadhaar is enabling digital payments in rural areas. NPCI has conducted a pilot project for face authentication and IRIS based AePS to promote contactless AePS, to further drive financial inclusion in rural areas.

Fear of digital frauds

As digital payments and online transactions become the norm, the apprehension about digital frauds is also real. The Government, along with regulatory bodies such as the RBI, has undertaken several steps to ensure safety and security of various digital platforms. The Indian Computer Emergency Response Team, (CERT-In), issues alerts and advisories regarding the latest cyber threats and countermeasures to ensure safe digital transactions. CERT-In works in coordination with service providers, regulators and Law Enforcement Agencies (LEAs) to track and disable phishing websites and facilitate investigation of fraudulent activities. Security tips are published for users to secure their desktops, mobile/smart phones and prevent phishing attacks. All authorised entities/ banks issuing PPIs in the country have been advised by CERT-In through RBI to carry out special audit by empanelled auditors of CERT-In on a priority basis and to take immediate steps thereafter to comply with the findings of the audit report and ensure implementation of security best practices.

CERT-In has also set up the National Cyber Coordination Centre (NCCC) to generate necessary situational awareness of existing and potential cyber security threats. CERT-In provides the requisite leadership for the Computer Security Incident Response TeamFinance Sector (CSIRT-Fin) operations under its umbrella for responding to, containment and mitigation of cyber security incidents reported from the financial sector.

Securing digital payments

RBI has taken various steps to enhance security of digital payment transactions (including card transactions) and reduce frauds. These also include various benefits (in terms of increased safety of transaction, efficiency in grievance redressal mechanism, etc.) being provided to customers. Banks have been advised to put in place appropriate risk mitigation measures like transaction limit, transaction velocity limit, fraud checks and others depending on the bank's own risk perception. RBI has also introduced 'Ombudsman Scheme for Digital Transactions, 2019' in the public interest and in the interest of fair conduct of business relating to payment systems, to provide a mechanism of Ombudsman for redressal of complaints against deficiency in services related to digital transactions. Further, business establishments with annual turnover more than Rs.50 crore have been mandated to offer low cost digital modes of payment to their customers and no charges or Merchant Discount Rate (MDR) shall be imposed on customers as well as merchants. With effect from January 1, 2020, all charges including the Merchant Discount Rate (MDR) on payments done through RuPay Debit cards; BHIM-UPI; and UPI QR Code/ BHIM-UPI QR Code have been waived off.

Waiting for the Digital Rupee

Looking beyond making retail financial transactions more convenient, the digital payment network has had a profound impact on bulk, high value business transactions such as commercial payments, institutional financial transfers or government financial aid. The next big step in the Digital India revolution will be the introduction of the government-mandated digital rupee. In her Union Budget 2022 speech, Finance Minister Nirmala Sitharaman announced that the Reserve Bank of India would launch a Central Bank Digital Currency (CBDC) in FY 22-23. A CBDC will be yet another form of digital payment mechanism. What shape the RBI-promoted CBDC will take is yet to be known. However, there are clear advantages in a Central Bank driven digital currency, because today, bulk payments happen between countries, large transactions between institutions and large transactions between central banks themselves of different countries, which are all better enabled with digital currency. CBDC has the potential to provide significant benefits, such as reduced dependency on cash, higher seigniorage due to lower transaction costs and reduced settlement risk. Thus introduction of CBDC could also possibly lead to a more robust, efficient, trusted, regulated and legal tender-based payments option. There are, of course, certain associated risks which need to be carefully evaluated against the potential benefits.

New digital ecosystems

Meanwhile, the government continues to strengthen the digital payment infrastructure. The National Internet Exchange of India (NIXI) has partnered with PayU and NSDL to offer the payment gateway services. NIXI is implementing an online payment collection service to enable its members and partners to make payments regarding Memberships, Domain Registration fees and any other services of the company through various modes of digital payments. This integration of payment gateways on all its customer-facing websites will lead to increased ease of use for NIXI's customers by offering real-time payments, providing uninterrupted services and ensuring seamless experience to all stakeholders. The payment gateway market is primarily driven by increased penetration of e-commerce services and online payment applications. Mobile payment applications such as PhonePe, Paytm, Mobikwik and others are driving the growth along with technological advancements which make digital payments easier and safer.

The launch of the Electronic Bill (e-Bill) processing system is another far-reaching initiative in this regard. It is part of the 'Ease of Doing Business (EoDB) and Digital India eco-system' to bring in broader transparency and expedite the process of payments. The E-Bill initiative will enhance transparency, efficiency and facelesspaperless payment system by allowing suppliers and contractors to submit their claim online which will be trackable on a realtime basis.

Realising the digital economy dream

India has a strong regulatory system and robust large value and retail payment systems that have contributed to the rapid growth in the volume of transactions in these payment systems. The combined valuation of India's fintech industry, the fountainhead of the digital payments revolution in India, is set to surge to $150 billion in the next three years. There has been a substantial growth in e-payments by government and also in digital infrastructure in terms of mobile networks. The country now needs to undertake further efforts to bring down the volume of paper clearing and increase acceptance infrastructure to enhance digital payments.

Demonetisation, the ubiquitous UPI, mobile wallets, and convenient digital payment solutions have propelled the digitalisation of financial transactions. Smartphones, today, are not just a device for communication or entertainment, but double up as mobile banks for Indians. As digital payments take over from crossed cheques, and online shopping replaces the touch-and-feel bargain hunting at the local bazaar, it is the digital payment infrastructure that will underpin the entire revolution.

With a strong foundation of digital infrastructure and expanded digital access through the Digital India programme, India is now poised for the next phase of growth - creation of tremendous economic value and empowerment of citizens, as new digital applications permeate sector after sector. As per a McKinsey report, a digital economy is likely to create 60-65 million jobs by 2025. Digital India has proved the resilience of digital infrastructure and services and India has emerged as a more confident and more optimistic nation in the post pandemic world. A major share of the potential economic value could come from new digital ecosystems in diverse sectors, including financial services, agriculture, healthcare, logistics, jobs and skills market, egovernance and other areas. Going forward, the rapid rate of digitalisation is going to pose both challenges as well as opportunities. How efficiently we navigate the challenges and capitalize on the opportunities will determine how quickly we achieve the vision of a $5 trillion economy.

(The writer is a senior journalist and can be reached at ideainks2020@gmail.com)

Views expressed are personal