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Desi e-tools aiding financial inclusion

NEW DELHI: India has witnessed a revolution in the digital payment space aided by the massive adoption of smartphones. The demonetisation move announced by the Centre in 2016 and the Covid-19 pandemic have triggered deeper acceptance of digital modes of payment and led to faster financial inclusion across the country.
Supporting this massive surge, the National Payments Corporation of India (NPCI), an entity for operating retail payments and settlement systems, has provided the backbone and the infrastructure to help in the faster adoption of digital systems that has deepened financial inclusion.
Set up in 2008 by the Reserve Bank of India (RBI) and the Indian Banks Association, the NPCI launched a bouquet of digital payment products such as UPI, BHIM, RuPay, NETC, AePS, BHIM Aadhaar, Bharat BillPay, NFS, NACH, CTS and IMPS to facilitate safe and secure digital payments.
These products allow person-to-person money transfers, person-to-business transactions with kirana stores, petrol stations, recharges, e-commerce, retail, and business-to-business transfers such as retailer to supplier or distributor. Business-to-person transfers such as salaries, reimbursements, refunds and claims are also possible with these.

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Also possible are person-to-government transactions, such as tax, public transit and public distribution services. It also helps in government-to-person transfers in the form of direct benefit payments of several central and state government social security schemes.
“The awareness and adoption of digital payments have increased and benefits associated with it, such as safety, convenience, instant payment were key triggers. In the lockdowns, 36% of households surveyed used digital payments for the first time. We were delighted to have universal adoption across all segments. The humble SMS has held its own and reiterated how integral SMS communication is to delivering confidence and safety to the user. It became clear that people were digital-ready and the supply-side needed to continue to address the barriers to adoption,” Praveena Rai COO, NPCI, said in a report on Digital Payments Adoption in India prepared by PRICE, an independent, not-for-profit research centre.
Digital surge
Digital transactions soared during the lockdown induced by the Covid-19 pandemic as the government rolled out a raft of welfare programmes that were available at the click of a button. The massive financial inclusion programme triggered by the Jan Dhan Yojana helped the prolifer- ation of Rupay cards — a homegrown digital payments system under the NPCI ecosystem.
The Unified Payments Interface (UPI) is described as a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing and merchant payments under a single system.
Monthly transaction volumes on these platforms have soared under this entity and crossed 5 billion for the first time in March 2022. According to data shared by the NPCI, UPI recorded 504 crore transactions up to March 29 this year for a value of Rs 8,88,169 crore. The account-to-account fund transfer platform had crossed 400 crore transactions in October 2021, hitting a new record.
UPI has been setting new records month-on-month in terms of transaction volume and value because of the rising acceptance among users and merchants. The NPCI has added new functions such as UPI Autopay to enable recurring payments and IPO via UPI.
“Digital payment adoption is now very well entrenched in India. Overall, one-third of Indian households are using it in some form or the other. (It is) heartening to note that almost a quarter of the households in the bottom 40% income group is using it as well and it has not remained a rich or well-educated person’s preserve. Fifteen per cent of households in the bottom and middle categories would like to adopt digital payments. Further, smartphone ownership is no longer a bottleneck for the adoption of digital payments. The numbers speak for themselves,” according to the Digital Payments Adoption in India report.
Financial inclusion, innovation
Policymakers say NPCI has emerged as a key institution supporting the massive surge in digital adoption and is an example of a homegrown solution that has attracted global attention.
“The NPCI has done path-breaking work. It has done unique work because it created the architecture where banks and fintech both have a role to play in financial services based on the principles of co-creation. It built a large-scale public platform for payment system which fuelled the growth of start-ups and fintech sector alongside Aadhaar,” said Amitabh Kant, the former chief executive officer of Niti Aayog.
“It enabled large scale financial inclusion using DBT and AEPS which came extremely handy during Covid times for our poor and needy citizens, apart from eliminating leakages and duplicates on a large scale. Fourth, it acts as a public good, away from intentions of profiteering, stock market gyrations. It was created as a vehicle with the intention of driving innovation, bringing efficient, cost-effective, citizen-scale payment systems for a large country of 1. 3-billion population. Fifth, because of the NPCI, India today is self-sufficient in payment systems,” Kant said.
Experts say the infrastructure that has been built will help in ushering greater financial inclusion in the years ahead. “By bringing in a diverse range of banks and non-banks together under a common infrastructure, this architecture has potentially facilitated financial inclusion as evidenced by the increase in high volume-low value payment transactions. The overall structure of publicly provided digital infrastructures has scope to support the provision of many financial services and to further deepen financial inclusion and development,” according to an IMF working paper.
However, the challenge for the NPCI would be to sustain technological innovation, increase capacity to support the huge digital expansion and ensure that the systems remain glitch-free and enable seamless transactions across the country. The focus should now be on making its systems more robust and failure-proof.

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