The Union Cabinet’s recent decision to set aside Rs 2,600 crore to incentivize banks to promote digital payments has welcomed India’s move to widen and deepen alternatives to cash, the most widely accepted method of payment worldwide. The focus is on worthy push. The Reserve Bank of India’s ‘Payments Vision 2025’ document states that ‘payment systems foster economic growth and financial stability’ while supporting financial inclusion. There can be no doubt that the rapid and widespread adoption of digital payment methods as well as the move to bring more people into the fold of the banking system have led to an increase in the number of low-value transactions, especially in metros and cities. It has helped in reducing the dependence on cash. At the heart of this payments revolution has been the National Payments Corporation of India and its Unified Payments Interface (UPI). UPI’s function as a transaction enabler has been instrumental in underpinning this change. In December 2022, the total monthly volume of UPI-facilitated transactions is expected to be around Rs 783 crore, with a value of over ₹12.8 lakh crore. While this was a 71% increase in volume and 55% in value compared to a year ago, UPI volumes last month were close to 54 times the transactions in December 2017, and a staggering 98.6 times the value seen five years ago. Was gonna ,
The adoption of digital payment methods, while accelerated by the COVID-19 pandemic, has also been enabled by the widespread number of banks that have supported the UPI system as well as the indigenous RuPay credit and debit cards. A welter of private financial technology or fintech firms that offer tailor-made digital applications, and big tech and social media companies that have added payments to their core offerings with a view to increasing sustainability, have also been key movers. However, the banking sector has been at a relative disadvantage in leveraging the payments ecosystem for its core business growth as the infrastructure spend to support and secure such payments has been disproportionately high compared to fintech and big tech rivals. has been more The government’s new incentive is aimed at leveling the playing field by offering lenders payment in lieu of the commission forgone, otherwise they would waive off the merchant discount rate. Still, challenges abound. Policymakers urgently need to encompass the wealth of personal spending data being generated and continuously enhance security to protect payment systems from cyber threats.