The Government of India has been taking several measures to promote and encourage digital payments in the country. To put it in simple words, a digital payment occurs when goods or services are purchased through the use of various electronic mediums. There is no use of cash or cheques in this type of payment method, a cashless economy wherein all transactions are carried out using different types of payment methods and this does not involve the physical use of money for the purchase of various goods and services. As part of the ‘Digital India’ campaign, the government aims to create a ‘digitally empowered’ economy that is ‘Faceless, Paperless, Cashless’. There are various types and modes of digital payments. Some of these include the use of debit/credit cards, internet banking, mobile wallets, digital payment apps, Unified Payments Interface service, Unstructured Supplementary Service Data (USSD), Bank prepaid cards, mobile banking, etc. These payments are made using payment instruments. Cash, for example, is a payment instrument. So are checks. However, Digital payments are not one instrument but rather an umbrella term applied to a range of different instruments used in different ways. Digital payments are set to benefit the country in a number of ways including:
Faster, easier, more convenient: Perhaps, one of the biggest advantages of cashless payments is that it speeds up the payment process and there is no need to fill in lengthy information. There is no need to stand in a line to withdraw money from an ATM or carry cards in the wallet. Also, with the move to digital, banking services will be available to customers on a 24/7 basis and on all days of a year, including bank holidays. Many services like digital wallets, UPI, etc., work on this basis.
Economical and less transaction fee: There are many payment apps and mobile wallets that do not charge any kind of service fee or processing fee for the service provided. The UPI interface is one such example, where services can be utilized by the customer free of cost. Various digital payments systems are bringing down costs.
Waivers, discounts and cashbacks: There are many rewards and discounts offered to customers using digital payment apps and mobile wallets. There are attractive cash back offers given by many digital payment banks. This comes as boon to customers and also acts a motivational factor to go cashless.
Digital record of transactions: One of the other benefits of going digital is that all transaction records can be maintained. Customers can track each and every transaction that is made, no matter how small the transaction amount this.
One stop solution for paying bills: Many digital wallets and payment apps have become a convenient platform for paying utility bills. Be it mobile phone bills, internet or electricity bills, all such utility bills can be paid through a single app without any hassle.
Helps keep black money under control: Digital transactions will help the government keep a track of things and it will help eliminate the circulation of black money and counterfeit notes in the long run. Apart from this, this may also give a boost to the economy as the cost of minting currency also goes down.
Digital payments are slowly gaining popularity in India and there are many apps that are being launched in this sector. It has become a hassle-free and secure way to make payments. Started in 2016 by the Narendra Modi-led government, UPI-based payments system allows mobile apps run by retailers, airlines and other firms to take payment directly from customers’ bank accounts. This initiative has gained a lot of appreciation from many experts and professionals including renowned economist Nouriel Roubini who took note of India’s innovative and free homegrown digital payments ecosystem BHIM UPI (Unified Payments Interface) saying that it is the future of digital payments. MeitY is working on strengthening of Digital Payment infrastructure and creating awareness through promotions of digital payments with all the stakeholders to achieve Government’s vision of making citizens of this country digitally empowered. Citizens have been provided multiple options to make digital transactions. A dedicated ‘Digidhan Mission ’has been setup in meitY for building strategies and approaches in collaboration with all stakeholders to promote digital payments and create awareness.
With India aspiring to become a wholly digitized country, especially with the Government’s Digital India initiatives, the transaction system in India has seen revolutionary changes in the recent past. Technology has not only empowered big organizations, but also individuals, precisely the technology nerds to be inventive and experimental and develop tools and apps that have facilitated India to take the cashless route, The service providers will have to focus on infrastructure as well as end user tools to secure digital payments, National Cybersecurity Coordinator Gulshan Rai urged “take a step ahead in this direction”.
There have been various reports and surveys regarding the digital payments initiative of India, A recent report by the Reserve Bank of India stated that the number of digital payment transactions stood at 1.06 billion in December 2017. The Indian government is targeting to reach 25 billion digital transactions by the end of this fiscal year.
India’s largest digital payment provider Paytm, which is a member of Payments Council of India, which is a part of IAMAI, believes the mandate has come at the right time when payment companies are witnessing unprecedented growth.
“The directive to process and store data only in India will help curb the potential misuse and enable active regulatory monitoring. It will definitely boost customers’ confidence in moving to digital payments without worrying about the security of their personal data,” said Kiran Vasireddy, chief operating officer of Paytm.
NITI Aayog the government’s premier think tank, is working on a national strategy for blockchain which will identify the areas where the country can implement the technology and also list out the means for doing so. Blockchain is an infrastructure where a distributed digital record is maintained by a network of computers or nodes. This means information of a financial or nonfinancial transaction is shared with a decentralized network and validated by the entire network. Therefore, a blockchain framework, not being managed centrally, effectively reduces the chances of data manipulation and leaves lesser scope for a hacker to corrupt one system. There is increasing awareness about blockchain solutions in sectors across India owing to the more efficient, transparent, and secured database solutions that the technology offers. Other aspects of this technology are: helping telecom vendors in enabling 5G, IoT connectivity, and M2M connectivity; safeguarding public WiFi networks; and combating identity frauds. With advancements in emerging tools and technologies like cryptocurrencies, Internet of Things (IoT), automation, Machine Learning (ML) and analytics redefining the future and fintech industry, the report recommends future deliberations to ensure robust and resilient Indian financial services industry that offers a secure experience.
Blockchain is a decentralized digital ledger maintained by a number of nodal points. Every transaction carried out on a platform powered by blockchain technology is shared as well as validated by all the nodes of the network. The absence of centralized management of the transactions
In blockchain marks lesser possibility of data tampering and manipulation. Therefore, such applications of the blockchain technology could be a game changer in checking the levels of corruption in the government machinery and ushering an era if transparency. With implementation of Blockchain Technology, it is expected that the distribution will become effective and efficient, and subsidy transfer could be automated and made real time. Blockchain platform have inherent characteristics of distributed computing and ledger keeping of transactions i.e. confidentiality, authenticity, non-repudiation, data integrity, and data availability.
Overall implementation ensures that there is no dependence on intermediary agencies to prove the validity of transactions and resulting subsidy claims. Implementation platform is such that process transparency is evident, transactions cannot be altered and audit trails of transactions are available.
Blockchain is an incredibly fast technology. Instead of copying information an ongoing,”slow” and risky business, especially as hackers become ever more sophisticated, blockchain technology allows digital information to be distributed, rather than copied. There is no “maybe”. It is truly a revolutionary development. It has created the very backbone of an entirely new type of internet.
Here’s how it works for a typical Bitcoin transaction: Someone, somewhere, asks for a transaction,. The transaction is then broadcast to a P2P network, which consists of computers that are known as nodes.
The move to a digital currency issued by a central bank rather than a private sector entity can have profound effects on the financial system. In a recent note that deserves to be read in full because of its radical conclusions.
First , banks could lose their dominant position in the payments business If individuals have direct access to the central bank clearing house for a digital currency
India’s central bank, the Reserve Bank of India (RBI), has divulged key areas of concern regarding cryptocurrency. The communication is in response to a representation submitted by the Internet and Mobile Association of India (IAMAI). The document was sent to the central bank during the Supreme Court hearing of IAMAI’s petition against the crypto banking ban.
While RBI’s response cannot be made public, some industry participants have seen it and have discussed its content.
A source who has seen the document told news.Bitcoin.com that RBI told IAMAI it is particularly concerned about investor protection, cryptocurrencies’ lack of intrinsic value, and their anonymity, which could lead to money laundering.
Difficulties in Implementation
As with any new technology, there are some difficulties to adopting the blockchain. Even with all its benefits, the technology brings with it the notorious reputation of cryptocurrencies (the common name for digital currencies). Since its inception, Bitcoin (the biggest cryptocurrency) has been associated with illegal activities such as drug trafficking and extortion, due to its ownership anonymity. Although, recently, exchanges have been forced to implement KYC (Know Your Customer) and AML (Anti-Money Laundering) norms, the anonymity aspect remains.
Other cryptocurrencies, too, have faced their fair share of controversy. Unlike Bitcoin, whose creator is still unidentified, XRP (Created by Ripple) is backed by an enterprise that makes it easier to be held accountable for its actions. In May 2015, the Financial Crimes Enforcement Network charged Ripple with a US$700,000 fine due to its non-compliance with the KYC and AML laws. Going forward, while it may be easier for Ripple to monitor its transactions due to its B2B nature, authorities will still be skeptical of other cryptocurrencies that make it difficult to track their holders.
Along with government regulations, there are laws governing the Indian banking space. The Foreign Exchange Management Act, 1999 governs cross-border transactions and related activities. This supports, among others, certain banking and other institutions to be licensed as authorized dealers in foreign exchange. An entity proposing to deal in foreign exchange must obtain this FEMA license, in addition to the regular banking license from RBI. If the entity is listed, SEBI regulations also apply. The complex governance structure of these disparate systems further increases the challenge.
India is one of the fastest growing economies worldwide, and acceptance of Digital Payments in India has been one of the major reasons behind this phenomenal growth. As all eyes are set on India; the government is leaving no stone unturned to transform the country into a complete digital economy. Industry experts believe that India, along with China, will be the powerhouse of future growth of digital payment worldwide
According to the RBI, the highest amount of card transactions has been 311 million transactions and they were carried out in December 2016 post the cash-crunch period. This number is yet to be surpassed.
The RBI report says that UPI transactions were only 2 million in December 2016 and by December 2017 that number had risen to 145.5 million. E-wallets like Paytm, PhonePe, Google’s Tez and the BHIM app announced by Modi have played a big hand in shaping the economy from a cash dependent country to progressively pushing it towards a digital one.
The payments system indicators data is published by the Reserve Bank of India on a monthly basis. The statistics cover the methods of payment used in retail transactions in India. It constitutes payments via debit cards, credit cards and prepaid payment methods like M-wallets and mobile banking.
India is predominantly a cash-intensive economy. A large proportion of transactions are carried out in cash. This has happened because of poor financial literacy in the country. In the recent years, the government has provided major stimuli to bring as many people under the banking system as possible. According to an ICE 360 Survey, about 99% of household are covered by a bank account but banking instruments are not being used to save or invest in most of them. Due to the demonetization effort, we see a jump in a number of digital transactions as people used more cards and m-wallets to make payments.
The government plans to reach 25 billion digital transactions by March 2018, Mr. A.P. Hota, Managing Director & CEO, National Payments Corporation of India, said that it was necessary that banks issue debit cards to their un-carded customers, Initiate enhancement of acceptance infrastructure i.e. deployment of POS, mPOS, Aadhaar Pay, QR code, Micro ATM
Aspects of Digital Payments in scope:
Online processed payment transactions
Mobile POS payments processed via smart devices at point-of-sale
Digital consumer commerce transactions (e.g. credit card, online payment providers etc.
According to the latest World Payment Report 2017, by Capgemini and BNP Paribas, digital transactions in India are estimated to grow at 26.2% CAGR between 2016 and 2020. Though India is expected to lag behind China, which is expected to clock 36% CAGR in digital payments during the same period, considering the large untapped population of non-smartphone users, the digital payment scenario in India looks equally promising for the next one decade.
In India, only one-third of mobile phone users have smartphones, albeit the penetration (population) of a mobile phone has already crossed 80%. With just 450 million smartphone users, India is entering into a smartphone revolution era. It is estimated that the smartphone users’ base in India will swell to 702 million by 2020. The smartphone users in India are now spending more time on the Internet than ever before. According to a recent study, 40% of smartphone users in India spend 2-6 hours of their daily time on the Internet. With the growing dependency on the Internet, this time is bound to increase in the future.
The low penetration of smartphone and internet portray a big window of opportunity for all digital payment players in India. Aggressive marketing strategies employed by Digital wallet companies, the instant online money transfer facility by banks and demonetization drive by the government have encouraged smartphone users to rely on mobile payment as much as possible.