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How did India become the world's largest real-time payment market?

Mulitple players, mushrooming of fintech startups and 2 catalytic events unleashed India's digital payment revolution that gave ‘financial freedom’ to its citizens while making it the global leader in real-time transactions in the process

How did India become the world’s largest real-time payment market?
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How did India become the world’s largest real-time payment market?

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In the quest for simplifying digital payment, the Government of India is working toward omitting the need for a debit card to create UPI payments. Further, the pace of innovation in the fintech area will provide impetus to making the UPI popular yet secure digital payment option. The interlacing of policy and technology will lead to the financial integration of people from across the country, especially those from economically lower strata of society

In March 2022, the digital payment platform Unified Payments Interface (UPI) clocked five billion transactions amounting to Rs8.88 trillion ($110 billion) a month. This landmark event saw an increase both in the volume and value of transactions, which jumped by 11.5 per cent and 7.5 per cent, respectively, compared to February transactions.

UPI, which started as a peer-to-peer (P2P) transactions platform in 2016, transformed into a leading peer-to-merchant (P2M) transactions system. On a year-on-year basis, the digital transaction in India using UPI has doubled between 2021 and 22, indicating there is a meteoric rise in the adoption of digital payments, especially UPI, in the country.

According to fintech observers, the next target for UPI is to process a billion transactions a day in the next three to five years. National Payments Corporation of India (NPCI) has multiple initiatives to achieve this target. Some of the features that will make UPI achieve a billion transition a day goal are 'AuotPay, UPI Lite, and UPI123Pay.' These new 'on-device' wallet features are designed and developed keeping in mind the challenges and requirements, such as small-ticket transactions using feature phones without internet, of Indian consumers. These initiatives by the Reserve Bank of India (RBI) and NPCI are expected to boost both the transaction count and value.

What is UPI?

UPI stands for Unified Payment Interface (UPI). It allows the transfer of money from one bank account to another instantly via one's mobile phone. NPCI was formed in 2016 as the primary body with the task to develop a new payment system that is simple, secure, and interoperable.

So, the question - what did India do correct to become the largest real-time payment market?

It is a combination of timely policy action and serendipity of events that played out in sync over an extended period, making India a world leader in the real-time payment market. According to ACI Worldwide and GlobalData, the exponential growth of UPI in India has left behind China and United States.

Wikipedia quoted the CEO of Netmagic Solutions, saying: "UPI became one of the most successful deep-tech innovations coming out of India." According to the information platform, Google citing the success of UPI, suggested to the US Federal Reserve Board, in December 2019, the development of FedNow, a real-time payment system for the United States.

Integrating India's Unbanked

Most financial services such as banking, credits facilities, ATMs and instruments such as credit cards were limited to the affluent and the higher middle class of the country. However, a larger population of Indians, especially from rural, semi-urban and urban poor, were left out of the banking system for various reasons, including meagre resources, scanty infrastructure and lack of commitment from lawmakers. All this changed in 2014, when Prime Minister Narendra Modi launched a financial inclusion campaign called 'Jan Dhan' to bring banking services to rural India.

Under the scheme, 15 million bank accounts were opened on the inauguration day setting the Guinness Book of World Records. According to Wikipedia, as of January 2021, a total number of 417.5 million accounts have been opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY), out of which 359.6 million accounts are operative. In addition, according to various studies, beyond enabling account ownership and the use of financial services, the PMJDY also facilitated financial inclusion for a variety of demographics.

Low-cost mobile data

Like financial services - telecom services, especially the internet, were limited to those who could afford them and those living close to urban centres. However, in 2016 Reliance group launched its 4G Jio service. It had a tremendous and long-lasting impact on the behaviour of Indian consumers, especially those from rural and small towns. During the initial months, Jio's offered free calling and free data with 4G network and promoted digital services allowing users to experiment and try services that were not possible before. Such access to technology helped bridge the rural-urban digital divide while laying the foundation for digital payment.

Access to smartphone

According to India Brand Equity Foundation (IBEF), the smartphone market has recorded a 10-fold expansion from 14.5 million shipments in 2011 to 150 million in 2020. Despite a 4 per cent decline in 2020 due to the pandemic, India outperformed markets such as North America, Latin America and Africa. Further, according to Counterpoint Research, smartphone shipments are estimated to reach 173 million in 2021. Thus, the access to low-cost smartphones and 4G data has triggered digital payment adoption.

Acceptance by microbusiness

The key player in the adoption and scaling of digital payment is the microbusiness owners. The likes of street vendors, people who operate Mom & Pop stores and localised services provide. However, the two catalytic events, demonetisation in 2016 and lockdown between 2020 and 21, created a liquidity crunch, forcing vendors and people to adopt to digital mode of payment.

Mushrooming of fintech startups

Financial market experts feel that the pandemic has inadvertently accelerated the adoption of digital payments in the country by 5-10 years and the burgeoning UPI transactions is a testament to that. Such exponential adoption of digital currency led to mushrooming of fintech startups in India, leading to the democratisation of UPI in the country. In the quest for simplifying digital payment, the Government of India is working toward omitting the need for a debit card to create UPI payments. Further, the pace of innovation in the fintech area will provide impetus to making the UPI popular yet secure digital payment option. The interlacing of policy and technology will lead to the financial integration of people from across the country, especially those from economically lower strata of society.

(The author is Founder, MyStartup TV)

Major Sunil Shetty
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