RBI Plans a Digital Payments Index

The Reserve Bank of India (RBI) is poised to launch by July 2020 a Digital Payments Index (DPI) to gauge the impact and reach of digital payments in rural, urban, and semi-urban areas. As a part of RBI’s Statement on Developmental and Regulatory Policies, the DPI will be based on various parameters (viz. the level of rural penetration and innovation in the present modes and channels) to reflect with finesse the penetration and deepening of various digital payment modes.

The RBI is also intending via its DPI exercise to comprehend in detail the impact of its policy decisions on the digital payments market. By ‘policy decisions’ what is meant to be conveyed is such decisions as the waiving of Merchant Discount Rate (MDR – the fees paid by a merchant to a bank for accepting payment from their customers through cards or the Unified Payments Interface (UPI)) on UPI transactions. In the recently held Union Budget 2020 it was announced that no charges shall now onwards be levied on UPI and RuPay transactions, and that MDR might also get scrapped on all of the transactions initiated via debit cards.

With the DPI scoring analysis, consumers and various stakeholders will be able to analyse developments of the local area in terms of infrastructure, access, demographic, and acceptance concerning growth in relation to broader domestic and global digital payments standards. DPI is also expected to steer the financial inclusion agenda.

The RBI considered development of a DPI owing to the stupendous growth recorded by the digital payments industry in India in the recent years. As reported by Inc42, in regards to the volume of total digital transactions, RBI numbers state that a growth rate of 58.8% in 2018-19 was recorded. The 2017-18 transactional volume was 50.4%. In value terms, digital transactions soared by 19.5% in 2018-19, as against 22.2% in 2017-18.

Throwing light on the preceding developments revolving around the digital payments space, it’s worth mentioning that the RBI, in January 2019, constituted a five-member Digital Payments Committee with Nandan Nilekani as its head. The “High-Level Committee for Deepening of Digital Payments” had as its objective to encourage digitisation of payments and boost financial inclusion. Preceding to this development, the NITI Aayog in its report titled, Digital Payments – Trends, Issues and Opportunities, released in August 2018, had projected the industry to grow $1 trillion by 2023.However, on the flipside, the incumbent government should also now act upon considering submission of a draft Bill on Payments Regulatory Board (as was recommended by the panel headed by Economic Affairs Secretary Subhash Chandra Garg – awaited since Q4 2018) for Cabinet approval. Given that UPI recorded 955 million transactions valued at Rs. 1, 61,456.56 crore in September 2019, it’s a high-time time now that an independent PRB gets established to streamline the payments industry in India. Whereas, per the reports by Statista, in India, the total transaction value in the Digital Payments segment amounts to US$81,197m in 2020. It should also be noted that Google has recently expressed its recommendation for the US Federal Reserve to ‘replicate’ India’s UPI model for its proposed interbank real-time-gross settlement (RTGS) service. The DPI is set to strengthen India’s position of being a globally advanced digital payments leader.