Indian Payment Systems – An overview
Indian payment systems and settlements have traditionally been revolving around physical cash. Subsequent to nationalisation of banks, paper based instruments like cheque, draft and other negotiable instruments started receiving acceptance among public. There has been a rapid transformation since 2000 and at present, digital channels are being considered as the best and dependable modes for payments. Today, India has a host of digital channels for carrying out payments and settlements. Yet, cash and cheque remain the predominant modes of settlement in the country.
How did the transformation of Indian payment systems begin?
The transformation of Indian economy and banking system from a cash and paper based economy to digital channel based economy began in 2005 with the setting up of the Board for Payment and Settlement Systems by the Reserve Bank of India (RBI). Through a vision document released, RBI indicated its plan to discontinue operating the payment systems and announced the programme to bring the Retail Payment systems in India under a separate institution. With this intention, the Payment and Settlement Act was passed in 2007. National Payments Corporation of India (NPCI) was set up in 2008 to spearhead the transformation.
NPCI began its operation by taking over the operations of National Financial Switch (NFS) from IDRBT. NFS is the backbone of ATM networks in the country. Gradually, various other payment systems too were brought under the oversight of NPCI.
At present, the country has many options for payments like debit/ credit/ prepaid cards, Point of Sale (POS) network, strong ATM network, Mobile wallets, Mobile banking Apps promoted by banks, online banking facilities, ECS/ NACH, growing e-com and m-com platforms and powerful tools like IMPS, UPI etc. India has own card scheme named RuPay. Government of India and RBI initiatives like financial inclusion, promotion of BSBDA accounts, Pradhan Mantri Jan Dhan Yojna (PMJDY), Direct Benefits Transfer (DBT) and Aadhaar numbers, pushed the payment system in India to maturity.
Major Indian payment vehicles and platforms
Cash, with high currency to GDP ratio (around 12%), continues to be the favourite payment option, followed by cheques and drafts. At present following alternate channels are gaining popularity among Indian banking community:
RuPay and RuPay Secure Card systems
Immediate Payment System (IMPS)
Unified Payment Interface (UPI)
National Automated Clearing House (NACH)
Aadhaar Enabled Payment System (AEPS)
Aadhaar Payment Bridge System (APBS)
Cheque Truncation System (CTS)
National Financial Switch (NFS)
RTGS/ NEFT
Bharat Bill Payment System (BBPS)
Challenges for Indian Payment systems
To migrate a major portion of payments to digital channels, India will have to address and find out appropriate solutions for the following challenges:
• Strengthen and expand the payment acceptance infrastructure across the country
• Correct the imbalances in cost structures to make it acceptable for both acquirers and merchants
• Minimise the costs and service charges for customers
• Enhance consumer confidence in digital transactions.
• Ensure quality and easy solutions for feature phones and no mobile phone segments.
Future of Indian payment systems
After having made available a variety of digital channels for payments, the regulator and NPCI are now encouraging digitisation of payments in the country. The recently published vision 2021 statement for Payments and Settlements systems in India, underlines this desire. Government of the country and the regulator perceive digital payments as an important tool for economic growth and financial inclusion. India, with unique and innovative payment systems are gradually emerging as a global leader in this sphere.
