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RBI – Digital Payments Index

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The digitization of the market generated the need for online payment and banking transactions. The onset of digital payment fulfilled the need for a convenient payment method both for the customer and the retailer. In a country of 1.39 billion people, around 71 billion digital payments were recorded in 2022. Estimating the future growth of digital payment, RBI formulated a collective Digital Payment Index (RBI-DPI) in 2018. In order to gauge the extent of digital payments taking place across India. Multiple parameters have been considered to evaluate digital payment modes to construct the Digital payment Index. During Covid-19 Pandemic 2019, there was a significant rise in the RBI-DPI index, indicating the surge of Digital payments in the country. 
The Digital Payment Index (DPI), released in September 2021, shows an increase of 39.64% as 304.06 DPI against 217.59 in the same month. As per the index for March 2022, DPI is at 349.30 from 304.06 for September 2021.

Reasons for the Increase in Digitisation:

  1. The Covid-19 period accelerated Digital Payments in the country; it was established as a safe payment mode during the pandemic.
  2. Many apps and payment mode technology leaped into the market, like Paypal, Amazon, Apple, Alibaba, Google, Paytm, and various other FinTech that has leveraged customers’ payment convenience to capture the newly flourishing Digital market.
  3. According to PhonePe and Boston Consulting Group (BCG) report, India’s digital payments market is expected to grow more than threefold from $3 trillion to $10 trillion by 2026. Thus, going by this report, two out of every three payment transactions is likely to be digital payment by 2026.
  4. Consumer convenience, awareness of scanning QR codes, and internet accessibility even in unexplored interior regions will fetch the next level of growth in the Digital payment market. 

Features of Unified Payments Interface (UPI):

The Unified Payments Interface (UPI) is a revolution in the Digital market because of the following features:

  • User-friendly and supports easy and secure money transfers between bank accounts.
  • It’s an instant payment solution that facilitates inter-bank transactions.
  • It enables widespread digital payment solutions in the country.
  • It was developed and launched by the National Payments Corporation of India in 2016.
  • It boasts over a billion transactions every month.
  • Till July 2022 number of banks on UPI has reached 338 in comparison to 235 banks in July 2021 and the volume of 6.28 billion from 3.25 transactions.
  • The National Payments Corporation of India, in the next 3-5 years, targets to achieve 1 billion transactions per day on the UPI platform.
  • Karthik Raghupathy, head of the strategy and investor relations, PhonePe, recently said to a magazine that the volume of UPI transactions has gone up to about 46 billion in the FY22 from 5 billion in Financial Year 2019, which accounts for more than 60% of all non-cash transaction volumes in FY22. 

The National Payments Corporation of India (NPCI), set up by RBI and the Indian Banks’ Association for operating retail payments and settlement systems in India, recently approved an additional 60 million users on UPI for WhatsApp. So far, this has been a significant development for digital payments. The NPCI aspires to bring innovative technology to retail payment systems and provide a robust infrastructure to the Banking sector for physical and electronic payments. It is already facilitating secure payment solutions at a minimal cost through a bouquet of retail payment products such as RuPay card, Immediate Payment Service (IMPS), Unified Payments Interface (UPI), Bharat Interface for Money (BHIM), BHIM Aadhaar, National Electronic Toll Collection (NETC Fastag) and Bharat BillPay.

Essential Points of the Digital Payment Index:

  1. RBI decided to publish the Digital Payments Index (DPI) semi-annually from March 2021 onward with a lag of 4 months. Therefore, from 2021 RBI started releasing DPI for March and September in the months of July and January, respectively.
  2. The Base period of the RBI-DPI has been set as March 2018, at a score of 100.
  3. The DPI index comprises five broad parameters to evaluate the penetration of digital payments in the country.

The parameters are as follows and each of these has Sub Parameters consisting of measurable indicators:

Parameter Weightage              

Sub Parameters

Payment Enablers

 25%

 Internet, mobile, Aadhaar, bank accounts, participants, and merchants
Payment Infrastructure (Demand Side)

10%

 Debit cards, credit cards, prepaid payment instruments, customers registered–mobile and internet banking, and FASTags
Payment Infrastructure (Supply Side) 

15% 

Bank branches, business correspondents, ATMs, PoS (point of sale) terminals, QR (quick response) codes, and intermediaries
Payment Performance

  45%

 Digital payment systems (volume), digital payment systems (value), unique users, paper clearing, currency in circulation, and cash withdrawals
Consumer Centricity

5%

 Awareness and education, declines, complaints, frauds, and system downtime

Magnification of Digital Payments:

Many initiatives taken by the government and the regulatory body have propelled replacing cash transactions with digital transactions, such as the JAM trinity (Jan Dhan Bank Accounts), Aadhaar-based identification and mobile penetration, the launch of platforms like UPI, mobile banking, and plenty of payment gateways options available.

The rise in the DPI index can be understood from the following series of RBI-DPI indexes:

Period

RBI-DPI Index

March 2018 (Base)

 100

March 2019

 153.47

September 2019 

173.49

March 2020

 207.84

September 2020

 217.74

March 2021

 270.59

September 2021

304.06

March 2022

349.30

India is gearing up to become a cashless society, with consumers abandoning traditional ways of payment like cash and card. Digital Payment will continue to expand in the country, thereby improving faster liquidity flow in the market and cutting down the cash flow management.

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Last Updated : 12 Sep, 2022
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