In June, The Reserve Bank of India (RBI) released its Payments Vision 2025, a document that outlines the central bank’s ambitions for the domestic payment ecosystem for the next three years, sharing aspirations for cross-border payment linkage, the development of a central bank digital currency (CBDC), and the possibility of new rules being introduced targeting bigtechs and fintechs in the payments space.
Payments Vision 2025 highlights RBI’s aim to establish India as global powerhouse of digital payments, and details the regulator’s implementation plan to reach its goals.
The vision is articulated around five key pillars – integrity, inclusion, innovation, institutionalization and internationalization – and will, among other things, strive to increase digital payment transactions more than 3 times, encourage card acceptance and reduce cash in circulation.
Further integration of India’s real-time payment system, Unified Payments Interface (UPI), into more banking products will be explored, RBI said, in addition to linkage of credit cards and credit components of banking products to UPI.
RBI will also be introducing a new payment system specifically designed for processing online merchant payments using the Internet and mobile banking. The system will seek the overcome the shortcomings of payment gateways and payment aggregators, including delays in merchant settlements, the central bank said.
RBI will continue to promote its payments ecosystem on a global scale, and will actively support global outreach initiatives to expand the footprint of its domestic payment systems by collaborating with relevant stakeholders, it said. This includes exploring the feasibility of settling foreign currencies on Indian payment systems using bilateral and multilateral arrangements, and interlinking with fast payment systems of other jurisdictions.
To further bring efficiencies in payment processing and settlements, RBI said it will work towards the introduction of a CBDC and will explore use cases for both domestic and cross-border transactions.
Payment regulations and guidelines
On the regulatory front, RBI said that rapid innovation in the field of payments has prompted the regulator to consider introducing new rules and guidelines tackling trends including BNPL. Bigtechs and fintech companies involved in the payments space, as well as critical payment intermediaries like offline payment aggregators, may also be brought under the oversight of the central bank.
RBI also said it will constitute a Payments Advisory Council which will be tasked with assisting its Board for Regulation and Supervision of Payment and Settlement Systems (BPSS). The council will comprise experts representing consumer groups, payments technology, legal, bankers, fintechs, startups and data analysts, among key industry stakeholders.
India’s digital payments landscape has witnessed a phenomenal growth over the past five years. In a year through September 2021, digital payments across the country registered a growth of nearly 40%, data from RBI show.
Today, over INR 260 million (US$3.3 million) worth of digital payment transactions are processed on a daily basis by the country’s payment systems, with UPI representing two-thirds of that sum.
Another significant trend observed these past years has been the entry of small businesses into digital payments. Data from RBI show an increase of more than 500% in merchants accepting digital modes of payments during the half-year ended September 2021 compared to half-year ended March 2019. In the case of UPI alone, RBI observed an increase of more than 1,200% over the same period.
Local digital payment company PhonePe and consulting firm, the Boston Consulting Group, (BCG) forecast that India’s digital payment market could more than triple to US$10 trillion in the next five years. As a result of this unprecedented growth, digital payments (non-cash) would constitute nearly 65% of all payments, wherein 2 out of 3 transactions would be digital in the next five years, as opposed to 2 out of 5 transactions today.
UPI adoption will surge from 35% in fiscal year 2021 to 75% in the next five years, and digital merchant payments will grow seven times, soaring from US$300-400 billion today to US$2.5-2.7 trillion by 2026, the firms predict.
Featured image credit: Edited from Unsplash
