Payment Revolution In India – Economics – Free PDF Download

CURRENT AFFAIR

• Recently, digital payments in India touched a new high by reaching a billion monthly digital  payment transactions on the Universal  Payment Interface (UPI).
• Payment on UPI platform rose from 0.1 million in October 2016 to 1.3 billion in January 2020.
• Google has written a letter to the US Federal Reserve, asking them to learn from Indian  digital payments.

Reasons for this Payment Revolution

• Political Will
• A clear vision for shifting the system from low volume, high value and high cost to high  volume, low value and low cost. This can be  seen through Jan Dhana Yojana and Aadhaar
• A Proactive Central Bank
• Reserve Bank of India (RBI) created a non-profit market participant entity and levelling the playing  field between non-banks and banks.
• A paper by the Bank for International Settlements (‘The Design of Digital Financial Infrastructure: Lessons From India’) suggests that India  demonstrates how “a central bank can be proactive and equal partners with private sector  counterparts when it comes to fostering technological innovation in finance”.
• Use of Technology
• Aimed at balancing trade-off like ease-of-use vs fraud prevention. This can be seen through

ELEMENTS OF REVOLUTION

• Launch of Aadhaar
• Aadhaar put simply is one of the biggest depositories of biometric data in the world.
• About 1.2 billion Indians now have a digital identity.
• Aadhaar has provided a solid foundation for banking the unbanked (financial inclusion).
• Aadhaar acted as an “identity rail” i.e. giving banks and Fintech companies a secure means to identify would-  be customers — and the government and businesses an  easy way to pay them.
• Role of National Payments Corporation of India (NPCI)
• National Payments Corporation of India (NPCI), an umbrella organisation for operating retail payments  and settlement systems in India, is an initiative of  Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a  robust Payment & Settlement Infrastructure in India.
• It has been incorporated as a “Not for Profit” Company under the provisions of Section 25 of Companies Act  1956 (now Section 8 of Companies Act 2013).

UPI

• NPCI together with the RBI and Indian Banks Association (IBA) has established a platform  called UPI.
• UPI, in turn, acted as a “payments rail”, it gives those players access to infrastructure that  enables the transfer of funds.
• UPI provides a payment experience that is mobile-based, low-cost, 24/7, instant,  convenient, interoperable, fintech friendly, inside  banking, and safe.

WHAT IS UPI?

• UPI is a single platform that merges various banking services and features under one
• It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per  requirement and convenience.
• UPI turns smartphones into a virtual debit card. It allows real-time bank-to-bank payments to be  made using a mobile number or virtual payment  address (UPI ID).
• UPI has made the money transfer process a lot as there is no need to remember the receiver’s account number, account type, IFSC,  and bank name.
• Instead, money transfer can be made only by knowing Aadhaar number, mobile phone number  registered with the bank account, or UPI ID.
• A UPI ID is a unique identification for a bank account that can be used to send and receive

How is UPI different to regular  payments?

• Regular payments are based on overlay systems .
• More banking layers mean less efficiency, higher cost and higher barriers to entry.
• UPI is both cheap and enables instant payments as it is interoperable.
• Interoperability means allowing individuals to manage money residing in several accounts from  a single bank or payment service app on their
• This increases competition between banks by enabling people to switch funds cheaply.

Way Forward

• The central government must deadline digitising all its payments.
• Nandan Nilekani Committee for Deepening Digital
• RBI must also make UPI and RuPay fit for use in our $70 billion inward remittances that currently  come through exploitative financial institutions.
• Digitisation of the economy needs to be backed up by a strong data protection law.

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