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Digital Payment Revolution

Context:

• India has recently experienced a remarkable surge in digital transactions, notably due to the success of the Unified Payments Interface (UPI).
• During the fiscal year of 2023, India saw over 100 billion digital transactions taking place nationwide.

Key Highlights

• India represents 46% of all global digital payments, with UPI transactions constituting 80% of all digital payments in the country.
• The number of digital payments has significantly increased from 162 crore in 2012-13 to 14,726 crore in 2023-24 until February.
• In 2022, the value of instant digital transactions surpassed the combined transactions in the United States, Britain, Germany, and France by four times.

What is Digital Payment?

• A digital payment system, also known as electronic payment, involves transferring funds from one account to another using digital devices like mobile phones, POS terminals, or computers.

Varieties of Digital Payment Modes include:

• Unified Payments Interface (UPI)
• Bharat Interface for Money (BHIM)
• UPI 123PAY
• UPI Lite
• Cards (e.g., RuPay Debit Cards)
• Immediate Payment Services (IMPS)
• Aadhaar Enabled Payment System (AePS)

Components of Digital Payments

• JAM Trinity:
  • Jan Dhan Accounts: Over 46 crore Jan Dhan bank accounts have been opened, with significant representation from women and rural areas.
  • Aadhar: Nearly all adults possess a biometric identification number with over 1.3 billion IDs issued.
  • Mobile: The accessibility of mobile phones has increased due to a significant drop in data costs since 2016.
  • Unified Payments Interface (UPI): Launched in 2016 by the National Payments Corporation of India (NPCI), UPI is a public-private partnership providing an interoperable platform for direct payments linked to bank accounts.

Significance of Digital Payment

• Enhanced Convenience: Digital payments have increased convenience in daily life for individuals.
• Financial Inclusion: Access to banking services, credit, and savings has expanded to millions of previously unbanked Indians.
• Last Mile Access: Digital payments have broadened the reach of government programs and tax collection, ensuring wider participation.
• Encouragement of Entrepreneurship: The digital infrastructure supports innovation, enabling entrepreneurs to innovate at a low cost.
• Behavioural Shift: There has been a significant transition from a cash-driven economy to digital transactions.
• Decreased reliance on cash: Embracing a cashless economy promotes transparency and reduces illicit fund circulation.
• Augmented tax earnings: Increased digital transactions facilitate more efficient income tracking and bolster tax collection efforts.

Initiatives for Digital Payments in India

• Unified Payments Interface (UPI): Revolutionized digital payments by enabling instant and seamless fund transfers between bank accounts via smartphones.
• RuPay Cards: An indigenous card payment network launched by NPCI to promote digital payments and financial inclusion.
• GST Network (GSTN): Facilitates digital payments by offering a unified platform for taxpayers to file GST returns and make tax payments online.
• Rise of Digital Wallets: Services like Paytm, PhonePe, and Google Pay have gained popularity, providing users with a convenient way to store money digitally and make payments.
• Government Subsidies and Benefits: Direct benefit transfer schemes encourage people to adopt digital payment methods by transferring subsidies and welfare payments directly to beneficiaries' bank accounts.
• Supportive Regulatory Environment: Reforms and incentives by regulatory bodies create a conducive environment for digital payments' growth, ensuring security and consumer protection.

Challenges for Digital Payment in India

• Digital Infrastructure: Uneven access to reliable internet connectivity and electricity, especially in rural areas, hinders digital technology adoption.
• Digital Literacy: A lack of basic digital literacy skills limits effective and secure use of digital tools among a significant portion of the population.
• Cybersecurity Concerns: With increased digital transactions, cybersecurity threats like data breaches and financial fraud pose risks to individuals and businesses.
• Privacy Issues: Concerns about data privacy in the digital realm arise with social media platforms and services collecting extensive user information.
• Digital Divide: Disparities in access to digital infrastructure, education, and economic opportunities worsen the digital gap between urban and rural areas and different socio-economic groups.

Way Forward

• RBI's Payments Vision 2025: Emphasizes the 5Is for shaping the digital payment ecosystem: integrity, inclusion, innovation, institutionalization, and internationalization.
• Enhancing Digital Literacy for Fraud Awareness: Educating citizens about potential fraudulent practices in digital transactions.
• Harnessing Technology: Developing IoT-based payment systems to enable transactions through connected devices beyond traditional smartphones and tablets.
• Reviewing Legal and Institutional Infrastructure for Payments: RBI is reviewing the Payment and Settlement Systems Act 2007 to align with India's evolving digital payment landscape.
• Driving Innovation and Regulatory Strength: Legislative initiatives like the Digital Personal Data Protection Bill, 2022, and Digital India Act, 2023, aim to stimulate growth and innovation in digital payments.