Everything you need to know about digital payments in India – Part 1

Chapter 1 – The genesis of UPI and the future.

Has India well and truly embraced digital payments and become a cashless society because of the ease and convenience they offer? Are digital payments secure? What is the future of digital payments in India? These are the questions we cover in the next few blogs by Sahil, our payments expert.

The RBI in its ‘2021 vision document’ predicted a 50% increase in mobile-based transactions. But first, let’s take a trip back to 2016.

Enter demonetization

Our favourite Whatsapp forward during this period. Source: Unknown

The digital wave hit India quite abruptly, in 2016 the government banned high-value currency notes which together accounted for 86% of currency in circulation. A move that took our cash-based economy by storm. The nightmare of long queues outside ATMs and the inability to make cash transactions caused a lot of chaos, especially because the majority of transactions made in India are cash transactions. The objectives of demonetization have always been debatable, but no one can deny that it was an economic reform for the country, putting the ‘Digital’ in ’Digital India’.

Source: https://www.freepressjournal.in/cmcm/demonetisation-the-story-of-indias-tolerance

India’s Unified Payment Interface was launched around the same time by the NPCI (National Payments Corporation of India) to further aid the cause of moving towards a cashless economy, which could be insulated by phenomena like demonetization.

UPI to the rescue!

If you think back to the pre-demonetization era when every non-cash transfer would take several days, in fact, even today when we use NEFT or RTGS, the transactions can take up to several hours to go through. UPI solved this time lag in transactions, instantaneously, and this is exactly what made it so powerful. Built on top of IMPS, UPI cut the clutter of account details, and codes for P2P or P2M transfers, all you needed was the UPI ID of the receiver and you could make a transaction immediately.

The picture above shows the different attributes of UPI

The concept of Interoperability

UPI bridged all ‘banks apps’ (applications developed by banks) with digital wallets like PayTM, PhonePe, and GooglePay. Irrespective of the bank you had an account with, UPI could be enabled using any third-party application. The guidelines and mandate for interoperability were rolled out in October 2019. A move that ramped up the digital wallet segment, ensuring the safety and accuracy of transactions.


Scale of UPI

UPI crossed the 1 billion transactions mark in October 2019 garnering global attention. Google LLC even recommended a real-time payment model on the lines on UPI, to the U.S. Federal Reserve. NPCI also has plans of enabling acceptance of UPI in UAE and Singapore.

Just to give you an idea of the scale UPI has attained as a payment mode in a short span of 4 years, let’s look at the growth numbers in the graph below, which represent the transaction count, the number of banks that support UPI, and the total amount transacted.


In a recent interview Dilip Asbe, the MD and CEO of NPCI stated that “UPI will replace cash, which is predominantly used for low-ticket transactions, and debit cards will remain to be the choice for large-ticket transactions.”

Will UPI replace the debit/credit cards because of the convenience it offers? In the next part, we dive deeper. Follow our Facebook page for more interesting content, or simply follow the hashtag #IamShopX

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