Context:

While responding in the Lok Sabha, Pankaj Chaudhary, the Minister of State for Finance said that Digital payment transactions in India have grown significantly, reaching over ₹18,000 crore in the financial year2023-24, with an annual growth rate of 44%. Services like IMPS, NETC, and especially UPI have played crucial roles in this expansion.

UPI ecosystem in India:

UPI integrates multiple bank accounts into a single mobile app, enabling seamless fund transfers and payments.

·        Developed by NPCI in 2016 on the IMPS infrastructure, it is the world's most successful real-time payment system, ensuring secure person-to-person (P2P) and person-to-merchant (P2M) transactions in India.

·        With 632 banks on its platform, UPI processed ₹23.49 lakh crore across 16.58 billion transactions in October 2024, marking a 45% year-on-year growth. Its expanding reach highlights its role in India's shift to a cashless economy.

Global Expansion of Digital Payment Systems: India’s digital payment infrastructure is gaining international recognition. UPI is fully functional in UAE, Bhutan, and Singapore, with pilot tests completed in Nepal, Mauritius, France, and Sri Lanka, where commercial deployment is expected soon. RuPay cards are accepted in Nepal, Bhutan, Singapore, and UAE, with technical acceptance in the Maldives.

Challenges in Digital Payment Adoption

1.   Online Fraud and Cyber-Crime Threats: Increased digital transactions have led to rising cyber threats like identity theft, phishing, and financial scams. While security measures have improved, fear of fraud persists.

2.   Maintenance of Transaction Records: Managing digital transaction history is challenging due to a lack of user-friendly tools and occasional technical issues, creating uncertainty.

3.   Fear of Tax Liabilities: Small business owners and freelancers fear tax scrutiny and unexpected liabilities, discouraging digital transactions.

4.   Lack of Stringent Laws for Digital Payment Disputes: Resolving disputes like transaction failures or incorrect charges is difficult due to inadequate legal frameworks.

5.   General Reluctance and Digital Illiteracy: Digital illiteracy, especially in rural areas and among older generations, leads to a preference for traditional payment methods.

National Payments Corporation of India (NPCI)

NPCI operates India's retail payments and settlement systems. Established by the RBI and IBA under the Payment and Settlement Systems Act, 2007, it functions as a “Not for Profit” company under Section 8 of the Companies Act, 2013.

NPCI has launched key payment products like RuPay Card, IMPS, UPI, BHIM, BHIM Aadhaar, and Bharat BillPay, driving digital payments and financial inclusion in India.

Conclusion

India’s digital payment ecosystem has grown significantly, led by UPI and robust infrastructure. Ongoing global expansion and development will further solidify India’s position in digital payments. Addressing security, tax concerns, and digital literacy is essential for broader adoption and sustained growth.