India’s unique success in digital payments - Here’s how your business benefits

Last week, India made significant strides in advancing its payments systems - our indigenous UPI was integrated with Singapore’s Pay Now and G20 travellers are being given UPI access for payments during their visit to India. This enables a massive convenience of payments via PayTM, GPay, BharatPe and others. In this article, Compliance Calendar assesses the impact of these significant strides in digital payments made by India and traces its potential advantages for payments, Fintech and other businesses.

India’s UPI - a template for a digital revolution internationally

During the pandemic, the Unified Payments Interface (UPI) linked wallets and bank accounts were the lifeline of our payments economy. A report by the NPCI reports that about 50% of the transactions recorded on UPI are worth less than INR 200 each. From vegetable vendors to high-end stores, the UPI integration between sellers, banks and payment banks have revolutionised the way India makes its payments. At a recent G20 business meeting, UPI was lauded as a successful experiment that could be implemented in several other nations. In fact, last year, UPI crossed a landmark 7.3 billion transactions valuing over INR12.11 trillion.

Cross border transactions - why digital payments matter

In a cross border payment that involves the buyer and seller located in different countries, several challenges exist. Will the seller dispatch goods first, or does the buyer make payment first? This is a classic problem that has been minimised by digital authentication of both parties, creating an escrow account - an intermediary fund holder that releases payments only after goods cross borders.

The linkage of Indian payment systems with those abroad would not only make transfer of funds easier but also more cost effective and less risky. This not just helps businesses but also diaspora including students and those needing money transfer for medical treatments abroad.

Tracing impact on economy and small businesses

In FY22, around 60% of the volume of India’s retail payments were done through
India now boasts of over five crore merchant outlets across India, accepting QR Code based UPI
Our real-time transaction volumes are now the highest in the world, beating the Chinese model by more than three
This has led to a spur in ‘consumption’ in the economy, especially in Tier II and III cities, driving more production to cater to increased
The digital trail created by online payments helps shape better economic policy making by analysing consumer behaviour.

Recent developments that impact business growth

Fintech in Funding

With rapid developments in technology and payments systems, traditional lending models have given way to small ticket-size loans available just at the click of a button. Especially in the MSME lending space, partnerships between Non Banking Financial Companies (NBFCs) and fintechs providing platform support are becoming a key source of instant capital.

Delegates at G20 offered UPI

At select airports, eligible travellers are being offered prepaid wallets linked with UPI for use within India. Thomas Cook, ICICI Bank, IDFC First bank and others have been chosen to issue these UPI linked wallets with mobile numbers and NRO/NRE accounts.

AutoPay feature

UPI, with its autopay feature introduced last year, resembles a credit card transaction. A fixed amount can now be debited via UPI for subscription payments. This helps tide over the existing challenge of UPI not being the chosen mode of payment for any subscription service requiring routine payments.

UPI on feature phones

In order to enable rural and urban poor who neither own smartphones nor have access to the internet, the RBI introduced a UPI service called UPI 123pay, which will allow feature phone users to make payments using a dial-in option.

Challenges in the digital payments world

Globalising UPI - One of the challenges for RBI is expanding the UPI network to several other nations. It is reported that RBI is in talks with countries like Indonesia, Bhutan, UAE and Mauritius for establishing a direct link with payment networks of these countries. Other than technical issues of integration, geo-political issues and local lobbying prevents easy expansion.

Lenient authentication and security attacks - With novel developments in forging biometric authentication, e-sim and OTP frauds, impersonation and device hacking - payments online are facing more security challenges than ever. However, it has also opened new doors for startups providing security features.
Stricter RBI regulations - With requirements of local data storage, stricter KYC norms, strong licensing threshold, payments banks face regulatory challenges that can potentially make customer acquisition and profitability challenging.

Whether you’re a small business looking to expand your customer base to other nations, or a large NBFC or Fintech looking for compliance management for your business - Compliance Calendar has the best business solutions for you. Connect with us for a consultation with our in-house experts.