ABOUT DIGITAL PAYMENTS

Digital payments is a crucial enabler for Smart Cities and could contribute significant benefits to citizens, businesses, Governments (central / state / local) and the economy as a whole. It helps in reducing cost of cash and inefficiencies, provides convenience, enables real time reporting and increases transparency in the payment transactions. Due to the efforts undertaken by the Government of India, digital payments have grown multi-fold in the recent past.

Evolution and growth of payment instruments

The dynamics within the retail electronic segment itself has been subject to a considerable amount of change over the past few years. Key instruments that were once revolutionary have been phased out gradually to be replaced by newer advanced payments instruments that bring with them convenience and efficiency. ECS (Electronic Clearing System) and NEFT (National Electronic Fund Transfer) dominated the retail electronic space between the years 2000 to 2010. In 2007, NPCI introduced NACH, a faster and more efficient clearing platform. Although the complete adoption of NACH took time, with a transaction volume of over 2 billion transactions amounting up to INR 8000 billion in FY’17, NACH has contributed to over 40% of the overall retail electronic transaction volume holding a clear majority in the present day.

The IMPS story follows along on similar lines with transactions picking in post 2013-14, after a slow start from its launch in 2010. Unlike NEFT, where transactions are settled in bulk batches at pre-defined intervals during the day, IMPS is an instant service that is available 24*7*365, making it the emerging preferred mode of payment amongst customer looking options to transfer money. IMPS transactions have shown a tremendous growth from a mere 15 million in FY’14 to 500+ million transactions only 3 years later. With IMPS serving as the underlying platform for newer products such as UPI, its overall share in digital transactions is expected to continue growing at a steady pace and reach 25% by FY20.

Consumers are exploring various emerging digital payment instruments for their everyday transactions. Newer payment instruments (Wallets, UPI, BHIM, Aadhaar Pay and Bharat QR), focusing on customer experience and simplicity of transaction were introduced by Government of India, along with various financial institutes, to cater to this inundating demand for digital payments.As consumers learnt to transact digitally, average monthly transactions increasing considerably for a majority of introduced digital instruments. PPI (majorly mobile wallets) and UPI are witnessed the major traction with the highest growth multiple on a month-on-month.

Over the past few years, India’s digital payment story has boasted of a tremendous growth in the number of transactions. Urban and technically advanced users contributed to majority of these payments. In order to attain balanced growth across socio-economic boundaries and introduce the masses into the envelope of digital payment users, Government of India has introduced a multitude of payment products and initiatives specifically targeted towards the semi-urban and rural sections, with special focus on alleviating their unique challenges and issues. Most of these products were launched towards the end of second generation and they predominantly make up the third generation of digital payment products.

• The first set of these products were aimed at promoting customer adoption of digital payments, by introducing simpler and convenient ways to transact digitally. These included biometric based payments at mPOS devices through AEPS and feature phone payments through NUUP.
• Soon after, judging by the success of AEPS and QR based wallet payments, the Government also launched Aadhaar Pay (the merchant version of AEPS) and Bharat QR in an attempt to boost acceptance infrastructure through increased merchant adoption of digital payments.

Growth drivers for digital payments in India

Over time, payment instruments have developed their shape and structure through the influence of key driving forces. These forces are responsible for moulding India’s payments landscape and propelling it towards a digitally first future

It is yet to be seen how various new payment instruments fare in an ever-changing ecosystem however given the innovation the Indian payment landscape has seen in the last couple of years, the future is undoubtedly promising with various stakeholders in the value chain (banks, regulators, merchants, payment technology firms) continuing to collaborate to unleash a wave of digitization. Digital payments are expected to ease the process of citizen transactions for various Government services and can result in significant cost and time savings for the citizens.

Payments ecosystem and stakeholders

Payments technologies are now evolving at a rapid pace with new providers, new platforms and new payment tools launching on a yearly basis. At the core of these changes however, are a network of participants – the payments ecosystem - who communicate financial information to one another, competing and collaborating to facilitate transactions of every form. These payment processes, although invisible to the average consumer, are becoming increasingly seamless, leading to a friction-free payment ecosystem between merchants and buyers. ‘Payments ecosystem’ with its many complexities, is one of those terms that typically evokes confusion among those seeking to fully understand it. To understand where the next big digital opportunity lies, it's critical to understand how the traditional chains work and what roles its stakeholders play. The infographic below depicts the interaction between key stakeholders in the payments ecosystem, along with the key differences in their functionality. It also highlights the role played by various support entities and regulatory bodies in ensuring seamless digital transactions.