The Reserve Bank of India-appointed Nandan Nilakeni committee has set a ten-fold growth target in three years for digital payments. This only builds on the rapidly growing digital payments ecosystem since demonetisation, which has been driven by all round efforts on the part of regulators to support them, and the swiftness with which many players have taken to fintech companies, small finance banks, and many such entities in the financial landscape.
The committee had submitted its report in May and the central bank made it available on its website this week. The report says that this kind of growth envisaged in digital payments will be driven by a shift from high value, low volume, high cost transactions to low value, high volume, low cost transactions. “Over a longer period, this will eventually lead to a decline in cash requirements,” it noted.
The number of digital payment users active per month is pegged to grow three times, from 100 million to 300 million in just three years.
The Reserve Bank of India has already showed its commitment to further the cause of digital payments by deciding to do away with charges on RTGS (Real Time Gross Settlement) and NEFT (National Electronic Funds Transfer) transactions and asking banks to pass on the benefit to customers. It also recently extended RTGS timings.
“The RBI announced a couple of progressive measures today: the review of charges for RBI-operated payment systems and the constitution of a committee to review the ATM interchange fee structure. The goal of 10X increase in digital transactions in 3 years is underway!,” Nilekani tweeted on Thursday.
The committee had recommended that the acceptance infrastructure for digital payments should be expanded and cost structures currently inhibiting acquirers and merchants corrected. The report had noted that the overall cost to the customer for KYC at multiple stages of transactions and service charges need to be reduced. Measures like duty free imports of point of sales machines would also add to reduction in costs, it said.
“Reducing the overall costs of acquiring by lowering GST rates for acquiring infrastructure as well as on digital transactions will increase the incentive for acquirer and will push them to sign new merchants. The robust cash-in cash-out facility will also help increase the volume of digital payments,” said Mandar Agashe, founder and vice chairman, Sarvatra Technologies.
Meanwhile, the government has emerged as the single largest participant in digitisation of payments due to direct benefit transfers for welfare payments. However, the committee also noted that while digital credit has been increasing with direct benefit transfer etc., digital debit hasn’t been seeing similar growth. Debit card transactions have risen, but the problem here concerns the cost of transactions borne by the merchants.
The report also touched upon the issue of Kisan Credit Card holders not making digital payments, recommending the introduction of loyalty points and using banks to nudge farmers towards digital payments.
“The expenses on cards or even net banking transfers are generally twice as large as those on UPI (Unified Payments Interface). But, UPI may gradually win the race against card payments and net banking given its mobile first approach,” said Ramaswamy Venkatachalam, MD - Banking and Payments, FIS. The P2M (person to merchant) segment is recognising the power of the system and this will go a long way in boosting UPI ticket sizes, he added.
But, cash isn’t going away though digital payments are increasing. ATMs, having emerged as the main retail cash dispensers, have been under pressure due to high costs leading to many commercial banks cutting down. Now, the committee has recommended taking a relook at ATM charges, even as the RBI asked for the same at this week’s credit policy.
Steady march upwards
300 MN active monthly e-payment users expected within 3 years, up from 100 mn now
According to the report, the sharp rise in digital payments is expected to be driven by by a shift from high value, low volume, high cost transactions to low value, high volume, low cost transactions
RBI’s digital payments boost
The central has already showed its commitment to further the cause of digital payments by deciding to do away with charges on RTGS (Real Time Gross Settlement) and NEFT (National Electronic Funds Transfer) transactions.
It has also asked banks to pass on the benefits from these measures to customers, while also recently extending the duration during which RTGS transactions can be made by customers.
To further boost digital payments, the RBI-appointed committee has recommended that the acceptance infrastructure for digital payments should be expanded significantly while cost structures currently inhibiting acquirers and merchants should be reduced simultaneously.