Future of Digital Payment Ecosystem in India

Future of Digital Payment Ecosystem in India

801 Views

2020 and 2021 have been tough years for the pandemic-hit economy. Small and medium size businesses were affected but many migrated to an online mode and many created work-from-home models. There has been one positive outcome, though. The move towards a cashless, digital payment ecosystem has received a major boost in this period. According to the Ministry of Finance, the total volume of digital payments made in the country went up from 1459.02 crore in FY 2017-18 to 4371.18 crore in FY 2020-21. A nearly threefold rise in the number of digital payments is a great boost to India’s efforts to go cashless.In March 2021 alone, the total monetary value of digital payments made in India wasover INR 5 lakh crore.

Making Digital Payments Possible

Before we look into the future of digital payments in India, let us take a look at the backdrop. The stage for digital payment systems such as UPI, mobile wallets, internet banking, and others was set by the government’s financial inclusion program, the Jan Dhan Yojana. By making mainstream banking facilities available to the masses, the government has made it possible for the common man to make use of digital payment systems. Add to this the mobile proliferation rate in the country and the availability of Internet facilities, and we can see how digital payments are all set to take off. It is estimated that more than 200 million Indian users now actively use digital payments.

Banking and Financial Sectors

What we are witnessing now is an unprecedented fintech revolution. The acceptance of the open banking model has allowed a number of banks and financial institutions to communicate with third party applications and APIs. Till a few years ago, most bank websites featured housing loan calculators and other traditional financial products. These days, they showcase digital wallets, payments systems, and UPI integration. This is a clear indicator of the popularity of digital payment systems and indicative of future trends. In fact, the digital payment system adoption rates are highest in the SME space. Small traders, shopkeepers, and businessmen are increasingly accepting digital payments these days. This is clearly reflected in the way the banking and financial sector functions.

Digital Payments Ecosystem – The Path Ahead

The digital payments ecosystem in the country is likely to receive a great boost from the policies of the RBI. The Payment Infrastructure Development Fund (PIDF) scheme of the RBI aims at subsidising payment acceptance infrastructure in semi-urban and rural centres with special focus in the north-eastern region. This means we can expect to see digital payment systems booming in smaller towns and villages.RBI has also made mobile wallet interoperability mandatory from FY 2023. This is also likely to help greater penetration and usage of digital payment systems in India. RBI has also been considering instating a robust complaint redressal system.

The one space that the RBI, banks, financial institutions, and private fintech companies must now start to look at is security of digital payments. There is a great potential and need for development here. For example, an average Indian applying for a housing loan would look up IDFC home loan reviews online, before making the decision. Digital payment systems will be no different. Their success and failure will depend on user reviews of the security and financial safety they provide.

Banking