Digital Payments Have Still A Long Way To Go, Says RBI

While India ranks as a ‘leader’ in regulation of costs of payments systems, number of ATMs deployed and availability of alternate payment systems, it is categorised as ‘weak’ when it comes to the share of cheque volume relative to all payment instruments, share of card payments, and digital payment of utility bills, according to the Reserve Bank of India’s report on Benchmarking India’s Payment Systems.

The benchmarking was undertaken by selecting a mix of 21 countries (including advanced economy countries, Asian economies and BRICS (Brazil, Russia, India, China and South Africa) nations. It has been done over a range of 21 areas and 41 indicators. Payment systems have been rated on the basis of categories — “leader”: ranked 1st, 2nd or 3rd; “strong”: in the top rungs of the countries other than the leaders (4th to 9th); “moderate”: ranked in the middle (10th to 15th); and, “weak”: in the lowest rungs (16th to 21st).

When it comes to costs of payment systems, where the country is a leader, the report said there exists a stipulation that the Merchant Discount Rate (MDR) should be borne by the merchant and not passed on to the customer.

To promote digital transactions, the Central Government has been reimbursing the MDR charges on transactions with values up to ₹2,000 made through debit cards, BHIM UPI and Aadhaar-enabled payment system.

The Reserve Bank has also prescribed the maximum charges that can be levied by banks for transactions undertaken through National Electronic Funds Transfer (NEFT) system and the Real Time Gross Settlement (RTGS) system.

According to the report, India is next only to China in terms of the number of ATMs deployed and it also had a strong CAGR of 14 per cent during the period between 2012 and 2017. While this is good from customer service perspective, the report opined that it depicts a high demand for cash.

The report said India has developed a number of alternate payment channels. Although behind China, India has a decent 26 per cent of online transactions using e-money. It is far above other developed countries where cards, especially credit cards, are predominantly used.

India’s share of cheque volume relative to all payment instruments was high at 7.3 per cent in the year 2017 keeping it at the bottom of the pile with respect to the countries benchmarked. However, the share reduced to 4.6 per cent in 2018-19.

Debit and credit card payments made up 29.9 per cent of payment systems volume in the year 2017. Based on the mix of the countries benchmarked, India is in the lower rung and ranks higher than only Germany and Indonesia. In terms of volume, however, India is moderate with a strong CAGR.

Only 3 per cent of the population in India used the internet to pay utility bills in the year 2017. There is scope for increased adoption in this sphere of activity, the report said.

India is ranked ‘strong’ vis-a-vis laws in place and scope of payment systems regulation, cash in circulation per capita and number of point-of-sale terminals (PoS) deployed.

The country is ranked ‘moderate’ vis-a-vis cash in circulation as a percentage of GDP; overall payment systems transactions volume and growth; debit and credit card usage at PoS terminals and online.