Why are Indian payments in the global limelight?

Introduction: The Rise of Payments in India

In recent years, the Indian payments industry has attracted a lot of attention in the global fintech space. From the explosive growth of the Unified Payments Interface (UPI) to the popularity of digital wallets, India is reshaping the global digital payments landscape. This article will delve into the multiple reasons why India's payment system has gained international recognition and analyse how its innovative model can provide lessons for other countries.

The UPI revolution: a game-changing innovation

The Unified Payments Interface (UPI) is undoubtedly one of India's most successful payment innovations. This real-time payment system, developed by the National Payments Corporation of India (NPCI), has revolutionised the way transactions are conducted in India:

• instant transfer of funds: Allows users to transfer funds between different bank accounts in real time
• Streamline processes: Only a Virtual Payment Address (VPA) is required, no need to remember complicated bank account numbers and IFSC codes!
• 24/7 availability: Year-round service breaks the traditional time constraints of banking
• interoperability: Seamless connectivity between different banks and applications

UPI's success is not only reflected in its phenomenal domestic adoption rate - processing billions of transactions per month - but also in the fact that several countries are considering introducing or have already adopted similar systems due to its open source architecture.

Government-driven digital financial inclusion

The Modi government's Digital India strategy has laid the foundation for a boom in electronic payments:

1. effect of currency abolition: The abrupt abolition of banknotes in 2016 forced the population to look for cash alternatives
2. Jan Dhan Yojana Programme: Opening of basic bank accounts for hundreds of millions of unbanked people
3. BHIM application promotion: National-level mobile payment applications endorsed by governments enhance public trust
4. Infrastructure investment: Construction of the "India Stack" digital identity and data-sharing framework

These policy combinations have created a favourable ecosystem for digital payments, enabling hundreds of millions of people who are new to formal financial services to participate in the digital economy.

Convergent application of technological innovations

India is unique in integrating multiple cutting-edge technologies into everyday financial services:

Aadhaar Biometrics

The world's largest biometric ID database is realised in conjunction with financial services:

• e-KYC (electronic Know Your Customer) process simplification
• Aadhaar Enabled Payment System (AEPS) allows fingerprints alone to complete banking transactions

Smartphone ubiquity and falling data costs

Jio triggered a data price war that made:

• Mobile Internet Penetration Rapidly Increases to Over 80%
• Data services are affordable in rural areas

The Rise of the API Economy

Open API architecture facilitated:

The Unique Advantages of the Indian Payments Ecosystem

1. Inclusive financial architecture

The most notable feature of the Indian payments system is its success in including a large population that has traditionally been excluded from the formal financial system:

• Rural coverage: Easy to use for less educated users through an easy-to-use interface and dialect support.
• Micro and Small Business Consolidation: Street vendors to tricycle drivers accept UPI QR code payments
• Zero Handling Fee Policy: No fees for person-to-person (P2P) transfers lowers the barrier to use

This inclusive nature has enabled the user base of digital payments in India to expand from the urban elite to all segments of the country in just a few years.

2. Successful practice of the public-private partnership model

Unlike other countries where a single development path is led by either the government or the private sector, India has created a unique model of collaboration:

participant	Area of contribution	typical case
government branch	Policy framework and regulation	UPI standard setting, PMJDY programme
Central Bank of the Republic of China (Taiwan)	Infrastructure set-up	NPCI formation, RTGS system upgrade
commercial bank	Channel Network Coverage	ATM/network correspondent banking services
FinTech companies	UX Innovation	PhonePe/Gpay Localisation Improvements

This "iron triangle" relationship ensures system security while maintaining sufficient flexibility for innovation.

Catalytic effect of COVID-19

The epidemic has unexpectedly accelerated the popularisation of digital payments:

1. Contactless payments are just in demand

   • QR code transactions up 2,14% year-on-year
   • Rapid deployment of near-field payment technologies such as NFC

2. DBT Direct Subsidy Transfer
   -Govt. distributes epidemic relief to 8 crore people through UPI
   -Validated the feasibility of large social transfers

3. Merchant Digital Transformation
   Even food market vendors, who traditionally insisted on cash transactions, have begun displaying "Scan & Pay" signs.

This public health crisis has compressed a digitisation process that would have taken five years into 18 months.

"Technology export potential of India Stack

A country-level technology stack consisting of a four-tier architecture is becoming a model for emerging markets:

┌───────────────────────┐  

│ Application Layer │ (BHIM/3rd party APP)  

├óΓé¼┼ô───────────────────────┤  

│ Service Layer │ (AA Authentication/eSign, etc.)  

├óΓé¼┼ô───────────────────────┤  

│ Data exchange layer │ (DigiLocker/Aadhaar)   

├óΓé¼┼ô───────────────────────┤  

│ Infrastructure Layer │ (Cloud Server/5G Network)   

└───────────────────────┘ 

The system has attracted 13 countries, including Singapore and the UAE, to negotiate technology licensing, and its scalability is particularly suited to developing economies.

Strategic layout of UPI's internationalisation

Landmark progress in 2023 shows the accelerated pace of globalisation:

• 🇫🇷 Eiffel Tower Merchants Begin Accepting UPI Payments
• 🇸🇬PayNow interconnects with UPI
• 🇦🇪 Dubai Airport Duty Free Connects to Indian Payment Network