Digital Payment & its PossibilitiesApprox Read Time: 5 minutes
Digital payments network in India was boosted in the recent years:
- In 2008, the National Payments Corporation of India (NPCI) was set up as an umbrella organization for operating retail payments and settlements in India.
- In 2016, NPCI introduced UPI, which has since registered 100 million users and now clocks more than 1 billion transactions every month.
Growth in mobile payments:
- According to the NITI Aayog, mobile payments in India are expected to grow nearly 20-fold to $190 billion in the next three years.
- Of the nearly one billion mobile phone users in India, smartphone users barely outnumber feature phone users.
- These 420 million feature phone users can use the *99# USSD service to dial into 13 different languages, which would connect them to UPI.
- This brings digital payments to the common man and thus plays an important role in bringing greater financial inclusion in the country.
The growth potential remains huge:
- Despite the growth, India is far behind China, where 55% of spending is done digitally, compared to only 11% in India.
- While the progress made in recent years is substantial, the outlook for future growth is mind-boggling.
Innovation is necessary to capitalize on this:
- To capitalize on this opportunity, innovation is necessary at three levels:
- Adoption: A better understanding of human behavior, technology, use cases and dis-use cases will facilitate the 10x growth necessary in adoption rates to cover the entire population.
- Policy: The government has the rare opportunity to develop a data-centric understanding of how the economy conducts itself and uses money, and can set taxes accordingly.
- Technology: At the technology level, there is an opportunity to use voice as a means for authentication and conduct transactions across multiple local languages.
- Copious amounts of data from payment transactions can be analyzed to understand user needs and develop personalized loans and financial solutions at scale.
Zero merchant discount rate recently announced:
- The union finance minister recently announced zero merchant discount rate (MDR) policy for payments through RuPay debit cards and Unified Payments Interface (UPI) instruments.
- This policy dictates that when a consumer pays a merchant using RuPay or UPI, the bank may not charge the merchant a commission on the sale value that it usually charges a merchant, say, on a credit card transaction.
Will it reverse the progress made so far?
- Critics of this policy lament that it would begin to reverse the progress India has made in recent years to expand the digital payments network.
Digital payment systems of India have opportunity to go global:
- The opportunity is not just national in scope, but global.
- The NCPI is gearing up to take UPI to other countries, beginning with Singapore and the United Arab Emirates.
- The straightforward opportunity is in providing payment solutions to Indians travelling abroad.
Won’t be easy to realize this opportunity:
- However, the bigger and tougher game is to increase its usage among local people in countries outside India. This would put UPI in competition with the likes of PayPal and Skrill.
- Last month, Google famously suggested to the US Federal Reserve Board that they consider setting up a real-time payments system modelled on India’s UPI.
- For now, NCPI is working with its counterpart in Singapore, the Network for Electronic Transfers for Singapore, to bring UPI live in Singapore.
Growth story of mobile payments is similar to growth of internet in early days:
Arpanet grew to become internet:
- The Advanced Research Projects Agency Network (ARPANET), was an early packet-switching network dating back to the late 1960s.
- It established the first ever computer-to-computer link using a protocol suite known as TCP/IP.
- Arpanet and TCP/IP became the technological foundation of the internet as we know it today.
- They did so because they facilitated the transfer of even small amounts of data to anyone, anywhere.
- The internet today has expanded substantially in scope and scale since those early days and supports popular use cases such as search engines, emails, video streaming, e-commerce and social media.
UPI system can grow similarly too:
- Similar to Arpanet, a product such as UPI facilitates the transfer of even small amounts of money to anyone, anywhere, in a manner that is easy, fast, and secure.
- Like Arpanet, UPI can also grow to become something much bigger,
- We have seen just the beginning of the takeoff of digital payments.
- Any number of new business models could emerge from a platform such as UPI.
- The possibilities are endless. For example, peer-to-peer lending platforms, matching lenders with borrowers at an aggregate or individual level could emerge.
- New possibilities could be presented by the emergence and adoption of technologies such as blockchain.