Payments through digital modes are expected to jump to 1.5 billion transactions, worth Rs 15 trillion a day in five years, the Reserve Bank of India (RBI) estimates.
The daily transactions average at about 100 million now for a volume of Rs 5 trillion. Just before the Covid outbreak, the daily transactions were averaging around 125 million a day, which is more than five times the volume digital transactions witnessed in 2016 June, according to P Vasudevan, Chief General Manager for the Department of Payment and Settlement Systems at the RBI.
The RBI official was part of a panel on digital payments future at the Global Fintech Fest, organised by Fintech Convergence Council (FCC) and National Payments Corporation of India (NPCI).
Digital payments include transactions done through credit and debit cards, apart from various mobile payment modes like Unified Payment Systems (UPI). The plan to take digital payments to such heights is being supported by innovation labs supported by RBI who are experimenting with mobile payments that don’t require good data connectivity, or even through basic phones and even without phones, Vasudevan said. Those systems should be up and running by 2024, the RBI official said.
Besides, an Acceptance Development Fund (ADF) has been set up in which RBI has contributed heavily, along with payments services providers to develop the infrastructure for greater cards acceptance.
“We hope that cash transactions would be a thing of the past,” said Vasudevan, adding in the coming days passwords and pins can be replaced by iris based recognition for payments.
In India, digital transactions has the potential to reach 30-40 per cent of the gross domestic product (GDP), accoding to Dilip Asbe – Managing Director & CEO, NPCI.
However, it is unlikely that digital payments can be facilitated without merchant discount rates (MDR) that the payments services providers charge per transactions. The central bank has in the past severely restricted the MDR, severely affecting profitability of fintech and payments services providers in the space. Some of those concerns came to the forefront at the discussion where industry participants said MDR cannot be reduced to almost zero as that would be a serious disincentive in expanding the infrastructure.
Asbe said the development fund cannot be the only option for scaling up infrastructure 5-10 times, MDR would be required and necessary as it takes about 20-25 basis points cost to the acquiring side. “ADF will help but that wont be sufficient, for the eco system to thrive, MDR is the only option,” Asbe said.
T R Ramachandran – Group Country Manager, India & South Asia, VISA also supported this view, adding that innovation should be rewarded too. The payment infrastructure entails heavy cost, including for cybersecurity, and “somebody has to pick up the tab.”
Naveen Surya, Chairman of the Fintech Convergence Council said that without the incentive of MDR the benefits for the customers won’t be there. At the same time, Surya said the service providers are mindful not to charge high MDR charges as the eco system has also to be built up as public good.
Vasudevan acknowledged the concerns around MDR, and said ADF will help everybody, but as an industry, RBI is aware that there won’t be zero MDR.
The industry participants also said that an ideal solution to develop payments services would be to create a benchmark for everybody to follow and not to discriminate between banks and non-banks. There should not be any regulatory arbitrage between different types of players in the field, the participants said. Fintechs should be allowed to do more business, including acquiring customers, fintech companies also want to issue credit cards and the RBI should allow that. Since fintech companies will be now regulated by the RBI, there is no reason why RBI should not let the fintechs introduce more products, the participants said.
The RBI, said Vasudevan, is keeping an open mind to address various concerns raised by the industry, and is also open to new technologies such as blockchain.