Digital Payments

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    • Recently, the Union Government has earmarked ?2,600 crore as incentive for banks to promote digital payments.

    About

    • The outlay has been made to promote payments using RuPay cards and the Unified Payments Interface (UPI)
      • There were various complaints from the Reserve Bank of India (RBI) and banks as they were worried about the sustainability of building digital payments infrastructure in the absence of payments needed to scale and maintain them.
    • The fund will be paid to banks in view of the lack of a Merchant Discount Rate (MDR) for UPI and RuPay transactions. 
      • MDR is a commission on digital transactions. 
    • The scheme will also promote UPI Lite and UPI 123PAY.

    Image Courtesy: TH 

    • Impact of Covid: 
      • During Covid-19, digital payments facilitated functioning of businesses, including small merchants, and helped in maintaining social distancing.
    • Growth in digital Transactions: 
      • As a result of a previous incentive scheme for digital payments in the last financial year, total digital payments transactions have registered a year-on-year growth of 59%, rising from ?5,554 crore in FY 2020-21 to ?8,840 crore in FY 2021-22.

    Significance of Digital Payments

    • User friendly: It will provide economical and user-friendly digital payments solutions. It will empower users with affordable payment options accessible anytime and anywhere with convenience.
    • Load reduction: It will  reduce the load on banking networks for small transactions
    • Efficient: It will allow payments over older feature phones
    • Digital society: It is a journey towards a less-cash and less-card society and will enable further deepening of digital payments in the country
    • Global leader: This will reinforce India’s position as the global leader in the digital payments domain.
    • Hike in mobile banking: With the change in customer behaviour towards embracing digital and touchless modes of payments, partly due to the CoVID, there is a spike of 50% in mobile banking users, indicating inclusion of first-time users into the digital fold.
    • Expanding RTGS: RBI will look into the feasibility of expanding RTGS to settle transactions in major trade currencies such as dollar, pound, and euro, too would be explored through bilateral or multilateral arrangements.

    Issues/ Challenges

    • Geopolitical risks: The document also talks about ring-fencing of domestic payment systems, including the need to mandate domestic processing of payment transactions, in view of the emerging geopolitical risks.
    • Frauds: with the growing adoption of digital payment modes there will be a rise in digital payment frauds.
    • Domestic storage of payments data: Banks and non-bank PSOs are allowed to process payment transactions abroad subject to certain conditions.
    • Charges on digital payments: The Reserve Bank would also undertake a comprehensive review of all aspects related to charges involved in various channels of digital payments.

    Way Ahead

    • The digital payment landscape in India has been transformed and India has emerged as a leader in the creation of digital assets, which can serve as an example to many other nations. 
    • The Government of India needs to make more efforts to help India attain the status of one of the most efficient payments markets in the world. 
    • The emerging Fin-Techs will play a key role in the further growth of digital transactions by enabling transparent, secure, swift and cost-effective mechanisms benefiting the entire digital payments ecosystem.

    Source: TH