The search engine Google, in its recent submission to the Federal Reserve’s consultation on the proposal to create a real-time payment system, FedNow, urged the US central bank to learn from India’s payment system. In India, the National Payments Corporation of India, a non-profit partnership between the central bank and commercial lenders, has built the Unified Payments Interface (UPI).
The UPI launched in 2016 and is a real-time interbank payment system that also harnesses the philosophy of open banking. Technology companies can build applications that can transfer funds in and out of payment accounts held at banks. The rate for growth in the use of the UPI has been dramatic. The monthly volume of UPI digital retail transactions has risen seven-fold since the beginning of 2018. In November 2019, there were more than a billion transactions, totalling around $27 billion in value. The UPI has facilitated the large-scale adoption of digital retail payments in India, increasing from 65% in 2013/14 to 95% in 2018/19.
India has shown that open payments infrastructure can address policy problems like financial inclusion. For instance, India has gone from only 27% of adults holding a Bank account in 2008 to 80% in 2017. It also can enable significant innovation and competition. However, payments infrastructure alone will not solve all these problems. It must go hand-in-hand with trusted digital identity services, appropriate data protection arrangements and robust fraud protections. This together with wider Government initiatives like demonetisation appear to have moved the needle on financial inclusion.
But, before we get too carried away on the growth trajectory of payments in India it is worth bearing in mind that India is starting from a low base. Despite the staggering growth in the use of cashless payments, the average Indian made under 20 cashless payments during 2018.
Read more:
- Google, Federal Reserve actions to support interbank settlement of Faster Payments: https://www.federalreserve.gov/SECRS/2019/November/20191113/OP-1670/OP-1670_110719_136981_396266957468_1.pdf
- Financial Times (16 December), India’s payments revolution: https://ftalphaville.ft.com/2019/12/15/1576438221000/India-s-payments-revolution/
- Bank of International Settlements (15 December), The design of digital financial infrastructure: lessons from India: https://www.bis.org/publ/bppdf/bispap106.htm
The Lord Meyricks 