The Indian financial ecosystem has witnessed tremendous overhaul in these past recent times and continues to get a lot of prominence amongst its up takers. Furthermore, since demonetization, and with the spread of Covid-19, today, we witness a higher incidence of smallvalue transactions via digital means. The penetration of digital accessibility, increase in digital transactions across e-commerce platforms, offers a potential area for exponential growth in electronic payments. This has been possible with the introduction of several payment methods, which have been briefly discussed here while setting out to explore, where this ecosystem is spearheaded towards.
India has undertaken massive digitisation of its payments process, most significantly in the manner of undertaking financial transactions. The establishment of the National Payments Corporation of India (NPCI) was a watershed moment in the development of digital transactions in India. It envisaged the creation of a central institution that provides the infrastructure and operates retail payments, electronic payments, and settlement systems in India with the use of technology. The NPCI set a goal of transforming India from a cashdependent society into a cashless society by facilitating easy, safe, and instant electronic payments. One of the most significant development and addition to the payment system offerings is the first of its kind, indigenous, proprietary card network in India known as ‘RuPay’ that was launched and was conceived to fulfil RBI’s vision to offer a domestic card that allows various banks and financial institutions to provide electronic payments.
A common occurrence now, the Unified Payments Interface (UPI) is a system for fund transfers between bank accounts via a mobile platform. It allows account holders of any bank to transact money using a unique ID called the UPI ID or the payment address generated by the system and provides secure, real-time settlement. Since its inception, several businesses, and merchants like Paytm, Google Pay, PhonePe amongst others have integrated this payment method to their services and applications and offer it as a payment solution that is now interoperable with UPI to provide seamless services.
UPI offers a platform that aims to facilitate online immediate payments leveraging the available infrastructure required for it like increasing smartphone adoption, universal access to the internet, ubiquitous connectivity, and data availability. The prominence of UPI has led to interest being shown by regulators of overseas jurisdictions to participate in this robust ecosystem – with the Monetary Authority of Singapore1 willing to link PayNow and UPI to foster easy cross border payments between the two countries.
The NPCI in collaboration with the Department of Financial Services and the Ministry of Health and Family Welfare launched the e-RUPI, which is a digital payment solution that is cashless, a person and purpose-specific, contactless pre-paid voucher for one-time use, that a person can redeem at any centre that accepts it.2 With the intention to take benefits to the last mile, while keeping intact a nominal identification structure (via OTP authentication), e-RUPI has ensured that sectors like healthcare do not always suffer, where the infrastructure is languishing and benefits are not always reaching the intended users. This voucher is not reliant upon any financial instrument, bank account details, digital payments app or internet banking access which are generated through partner banks participating in the United Payment Interface (UPI) ecosystem, which can be sent by sponsors (government or private organizations) or can be delivered to mobile phones of intended beneficiaries in form of an SMS-string or a Quick Response (QR) code. The beneficiaries, in turn, can redeem the voucher for a specific purpose or activity at designated centers or merchants accepting e-RUPI3 .
With several discussions around virtual currencies, across the globe, India was the first to take a clear stand on taxation related to virtual digital assets (VDAs), by stating that they will be deemed as capital assets and any capital gains arising from the transfer of a VDA on or after April 01, 2022, are taxable at the flat rate of thirty percent. Increased willingness on part of the public to participate in investments in VDAs has led to the culmination of Central Bank Digital Currency (CBDC). CBDCs are legal tender in the digital form that it is a sovereign currency issued by central banks (RBI in India) which is exchangeable at par with fiat currencies4 . Its benefits include reduced dependency on cash, lesser transaction costs involved in the issuance of cash, and reduced settlement risk.
Following the trend in the adoption of digital currencies across the world and in India, the pilot in wholesale segment, known as the Digital Rupee -Wholesale (e`-W), was launched on November 1, 2022, with use case being limited to the settlement of secondary market transactions in government securities. The pilot in retail segment, known as digital Rupee-Retail (e`-R), was launched on December 01, 2022, within a closed user group (CUG) comprising participating customers and merchants. The RBI has indicated that the digital rupee will be used through digital wallets and will be interoperable within the UPI and be able to integrate with the existing digital payments ecosystems seamlessly.5 Users will be able to transact with e`- R through a digital wallet offered by the participating banks. Transactions can be both Person to Person (P2P) and Person to Merchant (P2M). The e`-R offers features of physical cash like trust, safety and settlement finality.
India has made impressive progress in innovation in the digital payment ecosystem and is at the forefront of the fintech industry in the world. A separate law has been enacted that governs its payment systems, the Payment and Settlement Systems Act, 2007 which has enabled an orderly operation and development of the payment eco-system in the country.
The Reserve Bank has played the role of a catalyst towards achieving state of the art, safe, secure, fast and efficient payment system it has introduced guidelines for account aggregator framework and tokenization which are techniques that collects and ensures safe transfer and access of user’s financial information in the payment system. Considering the other modes of payment systems which enable large volume transactions between private users through online banking, it is needless to say that RBI has been leapfrogging this ecosystem and is also providing the necessary fillips as and where needed to the ecosystem by release of relaxing norms, without compromising on efficiency or security.
With focus on additional factor authentication and adoption of tokenization as a golden standard, thumb-rule for online transactions, RBI’ role has become prominent, and the users of this digital ecosystem are better equipped to make several transactions with ease, trust and security. The way this sector is flourishing in India, it is not long before several other countries also start looking “south-east” to deploy simpler, unique and efficient transactions, for a population size, as large as ours.
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