The country has witnessed a surge in digital payment transactions post demonetisation and the pandemic.
The country has witnessed a surge in digital payment transactions post demonetisation and the pandemic. The increased smartphone penetration and economical internet plans across the country have supplied added boost to this exponential rise. With secure payment options like UPI, even the unbanked population is becoming a part of the propelling digitalisation.
One key factor that has led to the tide of digital payments is ‘Interoperability’. It has set the ecosystem in motion while enabling it to grow by leaps and bounds. Before we delve into the details, let us understand what Interoperability is.
According to the RBI, interoperability is the technical compatibility that allows a payment system to be used in conjunction with other payment systems. Simply put, it enables transactions using a given medium, such as ATM, PoS, or Wallet, irrespective of which bank, card, or application a customer uses. To make the dream of Digital India come true, we need interoperability across mediums, bank accounts, and e-wallets.
How interoperability operates across various mediums:
Interoperability on ATMs
The ease with which we walk into any ATM and withdraw cash would not have been possible without interoperability. It allows a customer from Bank X to withdraw cash from Bank Y’s ATM. It enhances the convenience for the end-user and enables cash withdrawals across ATMs pan-India. With the introduction of interoperability, bank customers, especially ones from rural areas, need not travel miles for cash withdrawal.
With RBI’s new directive on Interoperable Card-less Cash Withdrawals (ICCW) using UPI, the entire ecosystem will benefit from interoperability. It will add convenience to the users, especially those comfortable making digital payments via UPI, and give an impetus to the overall ATM cash withdrawals. It will also accelerate financial inclusion.
Interoperability on e-wallets
The Reserve Bank of India has mandated interoperability between e-wallets, creating a fair place for all payment players. Interoperability on e-wallets has allowed customers to transfer money to an e-wallet and even bank accounts. According to the mandate, UPI will provide interoperability in case the PPI is a digital wallet. And if there is a physical payment card, it should be acceptable on a card network. This mandate will also enable customers to pay with their wallet balance instead of their bank account.
While these guidelines exempt transit and gift cards, we will see the rise of ‘one nation, one card’ shortly. As a result, customers will use this ‘interoperable’ card for making transit and retail payments. They will also be able to withdraw cash from ATMs using the same card.
The role of UPI
India’s flagship digital payments platform, UPI, has been a leading force in bringing together payment players operating in silos. Today, UPI is preferable for all kinds of transactions – peer-to-peer and peer-to-merchant. According to the data published by NPCI, UPI clocked 5.9 billion transactions, amounting to Rs.10.4 trillion in May 2022. The stats testify to the popularity of the platform.
While individual bank & non-bank e-wallets have been moderately successful, the Unified Payment Interface (UPI) boosted the wallet-based ecosystem. Further, with the advent of UPI, customers/consumers can scan a QR code and enter a pin to process any transaction. It has not only simplified payments but also integrated various players, such as P2P players, into offering smart, standardised, and secure payment options to their customers. Additionally, UPI has given customers access to a larger network of merchants. It has brought them under the ambit of Digital India by creating an interoperable infrastructure.
What does the future hold?
Interoperability is the future of payments. Various initiatives by the Government of India favour its implementation across networks, PPIs, and even Cash Recyclers Machines or CRMs. The interoperability of CRMs may increase their penetration in the years to come. According to a report by Ken Research, CRMs in India might grow to 100,270+ by 2026.
With the introduction of the National Common Mobility Card (NCMC), the overall transit ecosystem will soon become interoperable. It will offer added convenience to the end-users. FASTag is another transit offering that benefitted from interoperability. It has allowed seamless collection of toll payments across pan India Toll plazas, irrespective of the issuing/acquiring bank.
In conclusion, interoperability will benefit the Government’s vision of Digital India, bringing the unbanked population into the mainstream payment system. It will lead to the increased penetration of digital acceptance.