The payment narrative has changed globally in the last few years, particularly in the Indian landscape. The Government of India, along with the central regulatory body, the Reserve Bank of India (RBI), is consistently engaged in enhancing the regulation and security of India’s digital payment ecosystem.
India has adopted several key regulations in the past few years to provide a platform and opportunity for transactions to evolve. For instance, the Guidelines on Regulation of Payment Aggregators and Payment Gateways, 2020, commonly known as the ‘PA-PG’ Guidelines in the industry, was recently enacted to create a well-regulated, secure and customer-friendly environment for pre-paid payment instruments.
In addition, the RBI (Outsourcing of Information Technology Services) Directions, 2023, commonly known as the ‘IT Outsourcing Directions,’ was placed this year. It has created a complex framework of compliances, while, at the same time, bringing much-needed certainty to all the nuanced requirements of digital payments.
Government-led Initiatives: Pioneering the Digital Payments Revolution
The Indian market has witnessed a drastic boost in digital payments and lending transactions. The Centre has taken various initiatives to facilitate the digital payments landscape, including partnerships between the National Payments Corporation of India (NPCI) and Singapore’s PayNow, resulting in a 10 per cent reduction in the cost of facilitating remittances. Moreover, in the first half of 2023, India signed various Memoranda of Understanding (MoUs) and agreements with countries like the United Arab Emirates (UAE), France, Sri Lanka, Bhutan etc., to promote the use of local currency for cross-border transactions and to link their online payment systems.
Apart from it, when RBI introduced the e-rupee on a pilot basis in December 2022, it garnered approximately 13 lakh users in just six months.
Further, to boost the e-rupee payments, RBI is planning to increase the daily Central Bank Digital Currency (CBDC) transactions by using the Unified Interface Payments (UPI) QR codes. By enabling inter-operability, any merchant accepting UPI payments can also accept CBDC.
Regulatory Shifts and Their Impact on India’s Credit Card Landscape
Before 2022, a noticeable trend emerged as numerous companies began to offer online credit card-like products such as e-credit cards. This phenomenon prompted RBI to respond with the issuance of Master Direction–Credit Card and Debit Card–Issuance and Conduct Directions, 2022. This directive delineated that the issuance of credit cards would be restricted to entities possessing specific registrations and not fintech companies. Consequently, this regulatory intervention catalysed a significant transformation within India’s payments industry, reshaping its landscape profoundly. In parallel, NBFCs were granted the authority to participate in issuing credit cards.
However, this was insufficient to bridge the gap created through e-credit cards. In response to that, various stakeholders are of the view that credit card issuance should also be allowed to NBFCs treated at par with banks under the scale-based regulations.
No more MDR- Impact on the Digital Payments Landscape
When RBI released instructions on ‘Rationalisation of Merchant Discount Rates (MDR) for Debit Card Transactions’ in 2017, the debit card industry was not the only one to suffer the big blow, but the credit card industry also saw the trouble coming, as it was only a matter of time that a big part of the population would move and adopt the cheaper, reasonable and easily-accessible UPI method.
Fast forward to 2019, the Ministry of Finance announced that customers and merchants would no longer be required to pay MDR fees. What seemed like just one plain announcement was a massive booster to the Indian digital payments landscape. According to it, all companies with a turnover of Rs 50 crore or more, need to provide payment facility through RuPay Debit card and UPI QR code to their customers, under which no MDR fee will be charged from customers and merchants.
UPI – A Multi-faceted Magic Spell?
While it is unsurprising that the adoption of UPI has acted as a boon for the Indian digital payments landscape, it has benefitted the e-payments industry on multiple levels. While making digital payments a ‘zero-cost’ option shall always remain the Unique Selling Point or ‘USP’ of UPIs, it has also skilled and reformed the e-wallets landscape.
For instance, companies working solely on the ‘e-wallets’ model, such as Paytm, had to relook and redesign their business models because of UPI, and incorporate UPI in their business model whole-heartedly.
If you go to any nook and corner of this country, you will find UPI there.
It has disseminated e-wallets and e-payments to vendors and customers in this county’s remotest part.
Market Players’ Initiatives
Backed by the robust digital payments framework, market players such as PhonePe, Razorpay and Cashfree are also launching new products to increase digital payments in India. Recently, PhonePe launched a health insurance platform and income tax payment feature on its application. This feature allows taxpayers to pay taxes directly using UPI or credit cards.
Anticipating the Impact of the Digital Personal Data Protection Bill, 2023
With digital payments getting ingrained in the Indian economy, newer prospectus like real-time Business to Business payments and cross-border digital payments are fast emerging. Further, to protect the interest of end-users and to make the framework more comprehensive, the GOI is already working on the Digital Personal Data Protection Bill, 2023. The Bill allows the processing of personal data post obtaining consent of the data principal (data provider) without putting the obligation of taking consent on the data processor.
The Indian Digital Payment market eagerly anticipates the enactment of the Bill. This forth-coming legislation is poised to establish a comprehensive and robust framework that not only bolsters the structure of digital transactions, but also serves as a safeguard for the interests of end users and service providers. The bill aims to instill a heightened sense of trust and confidence within the digital payment landscape by addressing crucial aspects of data protection, privacy and security.
Global Investment Landscape: Fuelling the Evolution of Digital Payments
As per the government data, India topped the list of countries in digital payments with 89.5 million digital transactions in 2022, which accounted for 46 per cent of global real-time payments. Considering the growth of the Indian fintech market, tech giants like Apple and Google are also planning to invest in the Indian market.
Sundar Pichai, CEO, Google, recently announced that the company will open its global fintech operations centre at Gujarat International Finance Tec-City (GIFT City) in Gujarat through its existing USD 10 Billion India digitisation fund. Similarly, Apple plans to launch a localised version of Apple Pay digital payment service in India. The tech giant is reportedly in talks with NPCI regarding the same.
The powerful blend of collaborative innovation and strong regulatory guidance in India is set to propel growth persistently and pioneering advancements in digital payments within the nation, and, on a global scale. With a strong focus on ensuring customer and data security, and compliance with convenience, India’s digital payments space remains an interesting sight to watch.