Digital transactions set to rise four times by 2021

The news

  • The RBI has released a report titled ‘Payment and Settlement: The Plumbing in the Architecture of India’s Financial System’.



  • Payment and settlement systems is a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them.
  • Over the years, the payment and settlement landscape has witnessed various innovations in the following ways-
    • Mobile wallets have made banking services available ‘on tap’.
    • Digital-only banks have done away with the need for brick and mortar presence.
    • Biometric authentication has made doing transactions much safer and more convenient.
    • Blockchain is creating strong tailwinds in the area of payments for automating and decentralising financial transactions.
    • Artificial Intelligence is helping with automated data analysis, chatbots and robo-advisers being employed to detect fraud.
    • Near Field Communication (NFC) technology and central bank digital currencies (CBDCs) are other path-breaking innovations.
  • In India, the payment and settlement system has made substantial progress over the years.
  • India ranks second in terms of FinTech adoption, with an adoption rate of 52 per cent.


Highlights of the RBI report/Summary of the news

  • The RBI has provided various data related to digital payments in its report titled ‘Payment and Settlement: The Plumbing in the Architecture of India’s Financial System’.
  • The report found a phenomenal growth in digital transactions till March 2019 and has set an ambitious target to push up the volumes by four times by 2021.
  • The report highlights the following:
    • Total digital transactions
      • Recorded a growth rate of 58.8 per cent during 2018-19, as compared to 50.4 per cent during 2017-18 in terms of volume.
      • Recorded a growth of 19.5 per cent during 2018-19, as compared to 22.2 per cent during 2017-18 in terms of value.
    • Retail transactions
      • Retail transactions grew by 38.2 per cent in terms of value.
      • Retail transactions accounted for-
        • 4 per cent of total digital transactions in terms of volume.
        • 2 per cent of total digital transactions in terms of value.
      • Distribution of total digital transaction (In terms of value)
        • RTGS transactions grew by 82.8 per cent.
        • UPI transactions witnessed an eight-fold increase over the previous year.
        • Point-of-sale (PoS) transactions grew by 30.2 per cent, as compared to 39.6 per cent last year.
        • Debit card transactions grew by 16.3 percent, as compared to 24.9 per cent last year.
        • Credit cards witnessed higher growth of 31.4 per cent, as compared to 39.7 per cent last year.
      • Distribution of total digital transaction (In terms of volume)
        • UPI reached a peak of 799.5 million in March 2019, which is 4.5 times the volume in March 2018.
        • Point-of-sale (PoS) transactions grew by 30.1 per cent during 2018-19, as compared to 36.2 per cent last year.
        • Debit card transactions grew by 19.5 percent, as compared to 9 per cent last year.
        • Credit cards witnessed higher growth of 25.4 per cent, as compared to 29.2 per cent last year.
      • Debit card usage
        • ATM usage accounted for major share of debit card transactions.
        • It accounted for 69.1 per cent in volume and 84.8 per cent in value.
        • Debit card PoS usage grew by 32 per cent and 29 per cent for volume and value, respectively, as compared to 39.3 per cent and 39.5 per cent a year ago.


Various modes of Digital payments

  • Banking cards (debit / credit / cash / travel / others)
    • They offer consumers more security, convenience, flexibility and control than any other payment methods.
    • They provide 2 factor authentications for secure payments e.g secure PIN and OTP.
    • RuPay, Visa, MasterCard are some of the example of card payment systems.
  • Unstructured supplementary service data (USSD)
    • The innovative payment service *99# works on Unstructured Supplementary Service Data (USSD) channel.
    • This service allows mobile banking transactions using basic feature mobile phone, there is no need to have mobile internet data facility for using USSD based mobile banking.
  • Aadhaar enabled payment system (AEPS)
    • It is a bank led model which allows online interoperable financial transaction at PoS (Point of Sale / Micro ATM) through the Business Correspondent (BC)/Bank Mitra of any bank using the Aadhaar authentication.
  • Unified Payments Interface (UPI)
    • It is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood.
  • Mobile Wallets
    • It is a way to carry cash in digital format.
    • We can link our credit card or debit card information in mobile device to mobile wallet application or you can transfer money online to mobile wallet.
    • Instead of using physical plastic card, we can pay with your smartphone, tablet, or smart watch.
    • Paytm, Freecharge, Mobikwik, Oxigen, mRuppee, Airtel Money, Jio Money, SBI Buddy, itz Cash, Citrus Pay, Vodafone M-Pesa, Axis Bank Lime, ICICI Pockets, and SpeedPay, etc. are some of the examples of mobile wallets.
  • Point Of Sale (PoS)
    • It is the place where sales are made.
    • On a macro level, a PoS may be a mall, a market or a city.
    • On a micro level, retailers consider a PoS to be the area where a customer completes a transaction, such as a checkout counter.
    • It is also known as a point of purchase.
  • Internet Banking
    • Also known as online banking, e-banking or virtual banking, it is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institution’s website. It contains following facilities-
      • National Electronic Fund Transfer (NEFT): A nation-wide payment system facilitating one-to-one funds transfer.
      • Real Time Gross Settlement (RTGS): It is defined as the continuous (real-time) settlement of funds transfers individually on an order by order basis (without netting).
      • Immediate Payment Service (IMPS): Itoffers an instant, 24X7, interbank electronic fund transfer service through mobile phones.
    • Mobile Banking
      • It is a service provided by a bank or other financial institution that allows its customers to conduct different types of financial transactions remotely using a mobile device such as a mobile phone or tablet.
    • Micro ATM
      • A device used by Business Correspondents (BC) to deliver basic banking services.


Some of the major efforts by the Government and the RBI to push digital transactions

  • The Digital India programme: It is a flagship programme of the Government of India with a vision to transform India into a digitally empowered society and knowledge economy and “Faceless, Paperless, Cashless” is one of professed role of Digital India.
  • Payment and Settlement Systems (Vision 2021): The Reserve Bank of India (RBI) has recently announced its vision document for digital payments.
  • Regulatory sandbox: The RBI has proposed to set up a regulatory sandbox to provide a suitable control environment for testing financial technologies (FinTech).
  • Peer-to peer transfer: To regulate the Peer-to-Peer (P2P) platforms sector, the RBI has issued master directions.
  • Availability: The RBI has extended the window of RTGS customer transactions by 1.5 hours and also examining the possibility of making NEFT available 24×7.
  • Grievance redressal:RBI has implemented an ‘Ombudsman Scheme for Digital Transactions’ to provide an economical and expeditious grievance redressal mechanism.
  • Committee for deepening digital payments: In order to understand the Indian payment ecosystem and its challenges, a High Level Committee headed by NandanNilekani was constituted, which has already submitted its report.
  • Removing charges:The RBI has recently decided to do away with the charges levied on transactions processed in the RTGS and NEFT systems.


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