Towards a cashless economy: India dominating digital payment landscape

What’s in today’s article?

• Why in News?
• India’s Move Towards a Cashless Economy
• Latest Developments in India’s Digital Payment Landscape
• Challenges to India’s Digital Payment Landscape
• Way Ahead

Why in News?

• According to government data, India with 89.5 million digital transactions (46% of the global real-time payments) in the year 2022 has topped the list of 5 countries (followed by Brazil, China, Thailand and S. Korea) in digital payments.

India’s Move Towards a Cashless Economy:

• Cashless economy refers to the economy where transactions are done using digital payment methods instead of using cash.
• India’s move towards a cashless economy started nearly 3 decades ago with the introduction of online banking.
• However, the digital payments ecosystem received its first real boost when the Reserve Bank of India (RBI) set up the National Payments Corporation of India (NPCI) in 2008.
  • It was launched to shape the payments infrastructure and enable innovations.
• This led to the launch of Immediate Payment Service (IMPS) in 2010 followed by the RuPay payment network, Aadhar Enabled Payment System (AEPS), Bharat QR, etc.
• The 2016 launch of the Unified Payment Interface (UPI), that enabled instant real-time payment based on a unique handle linked to a mobile number, can be considered the spark that ignited this journey.
• Since then, the volume of digital payments in India has grown by 50% annually to $1.5 trillion digital payment transactions as of December 2022.

Latest Developments in India’s Digital Payment Landscape:

• The NPCI is now enabling non-resident Indians (NRIs) to leverage UPI in countries such as Saudi Arabia, Singapore, Canada, Hong Kong, Qatar, the USA, etc.
• The Indian government is expanding UPI, RuPay, and the BHIM app’s functionality in several countries to simplify cross border payment processing and strengthen interoperability.
• The RBI has also recently launched the digital rupee (e₹), India’s central bank digital currency (CBDC), categorised as a legal tender in digital form.

Challenges to India’s Digital Payment Landscape:

• Lack of adequate infrastructure: In the current scenario, digital payment systems are heavily reliant on smartphones that are enabled with data connections, NFC, bluetooth, etc.
  • Out of India’s 800 Mn mobile phone users, only 200 Mn use smartphones. Of these, only 6 Mn are NFC-enabled.
• Reach of digital penetration to end mile of customers: There is a digital divide between rural and urban India.
• Prone of fraudulent transactions and cyber-attacks, rise of transactional failures, etc.

Way Ahead:

• The RBI’s Payments Vision 2025 document: It highlights 5Is – integrity, inclusion, innovation, institutionalisation and internationalisation – for digital payment landscape.
• Digital education: To make citizens aware of fraudulent practices that they can come across while making digital payments.
• Use of technology: Developing a framework for an internet of things (IoT)-based payments systems that would enable customers to pay via connected devices apart from users’ phones and tablets.
• Reviewing legal-institutional infrastructure: The RBI will also undertake a comprehensive review of the Payment and Settlement Systems (PSS) Act 2007, to bring it in line with India’s digital payment landscape.
• Innovation and robust regulatory framework: Like the new Digital Personal Data Protection Bill, Digital India Bill to drive growth and cutting-edge innovation for digital payments, not just in the country but globally.

Q1) What is Near Field Communication (NFC)?

NFC is a set of communication protocols that enables communication between two electronic devices over a distance of 4 cm (1.57 in) or less. NFC offers a low-speed connection through a simple setup that can be used to bootstrap more capable wireless connections.

Q2) How does the unified payment interface (UPI) work?

The UPI is a technology that combines multiple banking services, smooth fund routing, and merchant payments into a single mobile app that can be used by any bank that participates. It also works with “Peer-to-Peer” requests, which can be scheduled and paid for based on need and convenience.

Source: India dominating digital payment landscape, leading the way towards a cashless economy: Centre