Digital Channel Enablers for Payments and Settlements
Digital channel enablers worked miracles in India and succeeded in making digital banking transactions the first choice for payments and settlements. Competition among banks to delight customers through better banking experience popularised the digital channels and digital banking. At the same time, innovative products offered by non-bank entities and their promotional activities prompted the population to attempt digital channel based payment systems.
In the article, we analyse the digital channel enablers that transformed the payments and settlements segment in India.
Mobile phones as digital channel enabler
Both banks and non-bank entities have been vying with each other for leveraging the increased mobile density and mobile internet users to offer mobile based payment services. They succeeded in transforming mobile as the most powerful digital channel tool for payments and settlements. Banks offered mobile applications utilising the power of SMS, USSD (Unstructured Supplementary Services Data), NEFT and IMPS to migrate customers to digital banking while non-banking entities utilised the power of IMPS, BHIM and QR codes to attract customers. These developments facilitated the shift from cash based settlements to digital channel based payments and settlements.
By the end of year 2019, India had around 120 crore mobile users with overall tele-density of 89%.The spurt in the number of smartphones accelerated adoption of digital payments. Mobile phones also resulted in introduction of innovative digital payment mechanisms, like tokenisation of cards and QR code scanning based payment applications.
Internet as digital channel enabler
The shift of an average Indian from voice services to data services since 2013 has been spectacular and internet usage is still rising at a fast pace. At the end November 2019, there were over 64.2 crore and 1.9 crore wireless and wireline broadband subscribers, respectively across the country. With increased penetration of 3G and 4G services even to the remotest corners of the country, India is in the threshold of a Digital Revolution. The internet penetration played a vital role in even villages migrating to digital channels and digital banking for various electronic modes of payments and settlements.
Improved banking habits as digital channel enabler
Banking has reached the nook and corner of the country through Scheduled Commercial Banks, Local Area Banks (LABs), Payment Banks (PBs), Small Finance Banks (SFBs), Regional Rural Banks (RRBs) and cooperative banks. This resulted in 217.40 crore bank accounts at the end March 2019. The thrust of the government and regulator in financial inclusion resulted in 37.36 crore Basic Savings Bank Deposit (BSBD) accounts. Increase in bank accounts and improved banking habits are vital in migration to digital banking and usage of digital channels.
Aadhaar as digital channel enabler
The launch of Aadhaar in 2009 and the permission to use Aadhaar enabled eKYC (electronic Know Your Customer) became game changers for Indian banking system. Aadhaar enabled eKYC revolutionised account opening and digital payments in India. Aadhaar has been relied upon for authenticating payments to merchants and through business correspondents. Government payments (G2P) are relying upon Aadhaar for direct transfer of benefits (DBT) and for weeding out fake beneficiaries. Thus, Aadhaar became true force in migrating cash payments to digital form.
Debit and Credit Cards as digital channel enablers
Along with the spread of ATM and POS infrastructure in the country during the past 5 years, the number of cards have also been increasing rapidly. Over the period number of credit cards increased from 2.11 crore to over 5.50 crore, while debit cards increased from 55.35 Crore to over 80 crore. The rapid increase in debit card was aided by 29.60 crore Rupay cards issued to BSBD account holders. Migration from magstripe based cards to EMV Chip based cards by December 31, 2018 helped reducing card frauds and made card based transactions more secured. Increase in cards facilitated growth in both online and physical PoS terminals based card payments leading to more digital banking transactions.
The power of digital channel enablers is yet to be fully tapped and the infrastructure is still growing. At this pace, the dream ‘Digital India’ is nearby, if India continues to support the mobile and internet infrastructure providers. The initiatives of the RBI, the Indian banking regulator, are highly applaudable for making this transformation.
