DIGITAL PAYMENT REVOLUTION

 In the beginning of human civilization payments made were simple  through direct exchange of goods and services where barter system was prevalent. As civilisation advanced human wants increased and settled life started volumes of goods and services transacted shot up several fold  "Money"came into existence and it has transformed itself into different forms like-ommodity money, metallic money, paper money, and plastic money. Money served the primary functions of medium of exchange and measure of value,and secondary functions of store of value and standard  of deferred payments. Money can also be classified into fiat money- issued by the order of Government,Fiduciary money like cheques and  bills of exchange, full bodied money where intrensic value is same as face value and credit money where value is more than intrinsic value.Gradually in recent years virtual or digital electronic money transactions gathered dynamic proportions.

Introduction of digital payments system has revolutionized the nature and  volume of financial transactions in the country. A digital payment is an electronic payment or transfer of value from one  payment account using a digital device like mobile phones, Point of Sales (POS), or a computer, a digital channel communications  such as mobile wireless data or SWIFT (Society for the Worldwide Interbank Financial Telecommunications). According to the Indian Payments Hand Book 2021-26 " The Indian Digital payments market saw steady compound annual growth rate of  23% - value  wise and is  expected to  reach 217 billion transactions in  financial year 2026 from ₹59 billion in financial year 2022.Internet banking, mobile Wallets, plastic currency  (credit/debit cards) UPI and aadhar enabled payments are largely used in India. It  has been observed that 67% of internet users in  India are from mobile phones. Ever since the introduction online payment system retail online transaction platform Unified Payment Interface (UPI) continued to dominate digital payments system in the country despite the newer methods like Buy Now and Pay Later (BNPL). According to a study UPI is expected to continue to  be the major contributor of digital payments space followed by BNPL.In 2020-2021 UPI transactions reached a record 22 billion (₹2200 crores) and it is expected to reach₹ 169 billion by  2025-26 growing at CAGR 122%.Cross border remittances and low value transactions with other countries will contribute to this growth. Similarly BNPL is expected to grow from estimated current level of Rupees 363 billion to ₹3191 billion  by 2025-26.

Before UPI became prominent Wallets were used extensively  for digital transactions. Wallets store cash digitally and can be used to make payments. The digital payments space created by post demonetisation period using Wallets were captured by companies like paytm.But the number of payments using Wallets has started stagnating. UPI started outgrowing Wallets around mid 2018 rapidly. Surprisingly total number of transactions carried out through Wallets stood at  0.46 billion as against UPI transactions of 4.62 billion in January 2022.PWC India report expected payment industry to focus heavily on enhancing customer experience and providing customer options for payments, enhancing security, undertaking innovations in technology like distribution ledger technology (DLT)and emerging technology like IOT (Internet of Things)over  the next couple of years. With the initiatives and efforts of major stake holders like regulators, banks fintech companies ,card ,networks and service providers the Indian Payments industry is bound to see revolutionary changes in the next couple of years.  Existing products and emerging use cases such as UPI, BNPL,Fastag.Cards will continue to make inroads and gain  additional share of Indian customers. Enabling recurring payments and IPO subscriptions in addition to cross border remittances will promote a boost to UPI. Cases  for expanding consumer base like focus on digital journies in tier 3 and 4 locations, parking and fuel payments and new use case for Fastag are also being explored.

The proposed launching of Central Bank Digital Currency in current financial year in the country is likely to provide easy means to speed up a reliable sovereign backed domestic payment and settlement systems.Launch of CBDC is intended to mitigate the risks and reduce costs in handling physical currency, costs of phasing out soiled notes, transportation, insurance and logistics .This will partly replace paper currency. Subject to individual country wise design, compatibility, interoperability and legal permissibility CBDC can be utilised for cross border payment. Cross border payments can initially be applied with trading partners who have a two way dealing to create interoperability as the system integrate. Even though CBDC may also wean people away from private crypto currencies like Bitcoin to  some extent as a  means of money transfer, crypto will continue to be used by people who have an inherent appetite for speculation and it's value will continue to be determined by the market forces of demand and supply. It may be noted here that wild fluctuations are taking place in the value private crypto currencies currently in the light of global economic conditions like spiralling inflation caused mainly by soaring energy, food and metal prices, Russia Ukraine war, supply chain constraints increasing public debt, current account deficit and voltatility in exchange rates. The risks for introduction of CBDC in India are mainly  cyber security risks, vulnerabilty testing ,costs of protecting the firewall, reduced privacy relative to physical cash as the CBDC  holding could be tracked and accounted for. If not updated adequately faster obsolescence of  technology could also pose a significant threat to CBDC ecosystem necessitating higher  cost for  upgradation .In any case the existing digital payments mechanisms along with launching of central bank digital currency  with necessary framework and adequate safeguards will revolutionise digital payments space in India.