Digital payments growth: India’s astonishing progress

A committee on digital payments, chaired by Nilekani in 2019, set the bar still high, noting that retail growth in digital payments grew 10-fold in the five years since 2014-15. The target is an additional 10 times over the next three years.

Indians are increasingly adopting digital payments. This digital advancement has outpaced the markets of China and some developed countries in terms of digital transaction numbers. Government data shows that digital transactions grew by close to 90% from 232,000 to over 430,000 in the three years from FY19 to FY21. The growth was led by the United Payments Interface or UPI, a payment system developed by the government-owned National Payments Corporation of India to enable instant money transfers through mobile devices. According to the ACI Worldwide Report for 2020, India was in the pole position with 25.5 billion real-time online transactions, ahead of China at 15.7 billion, South Korea-6 billion, UK-2.8 billion, Japan-1.7 billion and the US . -1.2 billion.

The great digital success can be attributed to a number of factors. Firstly, the pandemic has been the major driver for the adoption of digital modes for making payments. As of December, under UPI alone, 4.56 billion transactions, with an estimated value of Rs 8.27 trillion, were done since the UPI platform was unveiled in 2016. In the year 2021, UPI transactions amounting to Rs. 73 trillion was done.

The number of active users is increasing every month. The Nilekani-led committee is expected to go up to 30 crores this year from 10 crores three years ago.

The rapid growth in digital footprint has gone unnoticed in a country with a huge pool of unbanked and financially illiterate consumers. Several countries have shown interest in learning from India’s digital financial infrastructure and ecosystem, particularly for its high level of security of transactions and relatively few instances of technical glitches or frauds.

Additional factor authentication or verification of transactions via PIN or OTP is seen as the Indian innovation responsible for relatively low incidence of frauds globally. This is the main reason for increasing customer confidence, leading to more rapid digital adoption. There is immense potential for financial inclusion.

The credit goes to the Indian central bank and banks and lenders who jointly leveraged the indigenous strength in technology and innovation of non-banks to build the infrastructure to offer a wide range of payment services. The rise of over half a dozen unicorns (with a valuation of over $1 billion) in the Indian fintech sector, offering services ranging from payments to cards and multiple payment options, both ride on secure and reliable digital financial infrastructure and contribute to speed. of adoption.

From the outset, the RBI and the government wisely believed that light-touch regulation was important. The risk is that pressure could arise to change this regulatory stance, particularly in the areas of security of digital payment channels, the level of fraud, transaction costs and consumer protection, including data sharing and privacy. That is why there is a case for Indian fintechs, which have benefited from open access to payments infrastructure, to invest more in quality of service and compliance and digital literacy of customers, working hand in hand with banks and regulators. For. A dispute resolution system should be put in place to handle complaints well before regulatory intervention is bound to happen.

The government has largely gone out of its way, thankfully. Going forward, its role should be to ensure the state of data connectivity and telecom infrastructure, especially in less urbanized parts of the country, while central banks and industry continue to focus on securing transactions and connecting more Indians. to reduce costs.