The payment system of India has evolved over the preceding 35 years as a ‘silent revolution,’ as dubbed by Mr. R. Gandhi, (Deputy Governor, Reserve Bank of India) during his speech at Banaras Hindu University (Varanasi) on 22 October 2016. The economic transactions of common persons and businesses initiated upon buying and selling goods and services require the value to be settled. This value needs to be settled via a payment of monetary consideration.
After the conventional barter system (involving exchange of goods for goods–rice for wheat), the precious metals–gold and silver–were used as money. Then, coins made of these precious metals were used as money. Then followed the advent of paper money as currency. This led people to manage their economic transactions by paying in currency notes and coins.
With the development of the banking system, an easy, safe and profiting alternative emerged for individuals to deposit money in a bank account. It became even more switt and safe to opt for the ‘transfer of money in bank accounts’ to initiate payments for the economic transactions (for large and low-value transactions). With this, the advent of cheques as payment (on instruction) instruments for the banks to initiate money transfer came into practice.
As developments in the information and communication technology (ICT) took place globally, various innovative payment instruments and systems evolved. Today, a strong retail payments framework is operational in the country. Different types of payment instruments are operational to satisfy the requirements of different users in different circumstances–bank accounts, cheques, debit and credit cards, prepaid payment instruments, etc.
Varied systems are in place to meet the remittance requirements of users pertaining to their time criticality and cost sensitivity–National Electronic Funds Transfer (NEFT), Immediate Payment Service (IMPS), Aadhaar Enabled Payment System (AEPS), and Unified Payments Interface. Bulk and repetitive payments are done by Electronic Clearing Service (ECS), National Automated Clearing House (NACH) and Aadhaar Payment Bridge System (APBS). Various committees were formed such as Rangarajan Committee I & II, Saraf Committee, Patil Committee, Burwan Working Group, etc. to assist in using ICT for banking and payment systems.
Since 1998, the Reserve Bank of India has been publishing a Payment System Vision Document for every 3 years, depicting the implementation plan. The cheque clearing systems developed to being MICR (Magnetic Ink Character Recognition) clearing systems in the 1980s bringing automation in cheque clearing process apart from standardising the cheque in terms of its physical dimensions.
This evolved manual clearing system to MICR (Magnetic Ink Character Recognition) clearing systems in the 1980s, ushering automation in the cheque clearing process. The cheque truncation system (CTS) was first used in New Delhi in 2008.
Later followed the T+1 cheque clearing identically to ‘local’ cheques. Then the Electronic Clearing Service (ECS) was introduced in the 1990s to facilitate payments to multiple recipients from one source–viz. dividend, salary, interest payments, etc.
The operationalisation of the National Automated Clearing House (NACH) by National Payments Corporation of India (NPCI) brought in the forefront the pan-India system for processing bulk and regular payments with the ECS gradually becoming NACH. Following the NEFT, the Immediate Payment Service (IMPS) and Real Time Gross Settlement System (RTGS) came into practice for funds transfer needs of users.
Later we witnessed the advent of the Aadhaar Payments Bridge System, further enabling the advent of Aadhaar Enabled Payments System (AEPS). Following the introduction of Unified Payments Interface (UPI), convenient operations for customers and merchant ‘pull’ payments were introduced. The massive scale advent of Aadhaar biometric identification and its rising acceptance in government payments (G2P) also encouraged its usage as a potential tool for payment authentication.
So, it can be concluded that large scale coverage of Aadhaar biometric identification and its increasing use in government payments (G2P). This has also led to its usage as a potential tool for payment authentication. Some concerns that arise are: uniformity in treatment towards the bank and nonbank entities, frauds, consumer protection and awareness.