Context: As the growth of digital payments in India is going to be phenomenal, several opportunities and challenges are waiting ahead.

Digital payment in India:

  • Steered by the RBI: The evolution of digital payments in India is piloted by the Reserve Bank of India (RBI) and captured in the Payment Systems in India, published in 1998. 
  • Introduction of RTGS: 
    • Launched by the RBI in 2004,  Real Time Gross Settlement System (RTGS) gave a major thrust toward large value payments. 
    • It covered payments on stock trading, government bond trading and other customer payments. It substantially reduced the time taken for settlements. 
  • RBI introduced National Electronic Funds Transfer (NEFT): NEFT is available round the clock and RTGS will follow from December 2020.
  • Contribution of Securities and Exchange Board of India (SEBI): The market regulator is attracting more international capital into the Indian market, in turn broadening and deepening the financial market.
  • Setting up of the National Payments Corporation of India (NPCI): 
    • It was set up by 10 lead banks of the RBI in 2009, based on the vision document on payments system, 2005-08 released by RBI in 2005. 
    • NPCI was set up to build a superhighway for digital payments, taking a number of policy decisions to spread digital payments and protect consumer interest. 
    • Success story of NPCI: The NPCI’s success supported by innovative technology, viz. Unified Payments Interface (UPI) and Immediate Payment Service (IMPS), is well recognised by central banks in many other countries. 


  • Reducing cost of digital payments: To make digital payments more inclusive.
  • Role of NPCI: With digital payment being a public good like currency notes, it is necessary that the corporation is fully supported by the RBI and the government. 
    • However, there is a demand from some quarters that the NPCI should be converted into a for-profit company to withstand competition. 


Steps taken by the government: 

  • On merchant discount rate: In Budget 2020-21, the government prescribed zero Merchant Discount Rate (MDR), the rate merchants pay to scheme providers, for RuPay and UPI, to popularise digital payments benefiting both customers and merchants. 

Way ahead: 

  • Rational structure of pricing: 
    • The ideal pricing for digital payments products should be based on an analysis of producer surplus, consumer surplus (i.e. gain or loss of utility due to pricing) and social welfare for which we need cost-volume-price data. 
  • Supporting NPCI:
    • Like the RBI is providing free use of the RTGS and other products, the strategy should be to assist the NPCI financially, to provide retail payment services at reduced price in certain priority areas. 
    • This may also help support expansion of the payment system network and infrastructure in rural and semi-urban areas in partnership with Fin-Tech companies and banks.


Image Source: TH