BHIM UPI to be launched in Bhutan. Here’s how India’s retail payments systems have evolved over the last decade

BHIM is an Indian mobile payment app developed by the National Payments Corporation of India, based on the Unified Payments Interface.

India’s retail payment channels have evolved over the last decade, aided by the push coming from banks, non-bank players in the payments system and facilitated by the government and the Reserve Bank of India (RBI)'s initiatives. The growth in the payment channels have helped to increase the access of a wider section of the population to formal financial services, even in areas where banks typically find it tough to operate.

On July 13, the National Payment Corporation of India's international arm NPCI International Payments Ltd (NIPL) and Bhutan's Royal Monetary Authority (RMA) announced their partnership for enabling and implementing BHIM UPI QR-based payments in Bhutan. As Bhutan becomes the second country after Singapore to adopt the Unified Payments Interface (UPI) for merchant payments, Moneycontrol gives you a primer on the growth of digital payments in India over the years.

What are the retail digital payment systems available in India?

The most commonly used payment systems in India -- apart from card-based transactions -- are Real-Time Gross Settlement (RTGS), National Electronic Fund Transfer (NEFT), Immediate Payment Service (IMPS), UPI, National Electronic Toll Collection (NETC) and Bharat Bill Payments System (BBPS). RTGS and NEFT are operated by the RBI, while the rest are operated by the National Payments Corporation of India (NPCI). RTGS and NEFT are channels that enable money transfers of up to Rs 10 lakh, with a lower limit of Rs two lakh applying to the former channel. UPI is meant for transfers of up to Rs one lakh.

What is NPCI?

NPCI is an umbrella organisation for retail payments set up in 2008 at the initiative of the RBI and banks. It was incorporated as a ‘not for profit’ company to bring innovations in the retail payment systems through the use of technology and widening the reach of payment systems. The ten core promoter banks are State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank N. A. and HSBC. In 2016, the shareholding was broad-based to 56 member banks to include more banks representing all sectors.

What is NPCI's contribution to India's payment ecosystem?

UPI has been the single biggest achievement of the NPCI. The mobile-based bank account to bank account transfer channel has grown to 2.81 billion transactions worth Rs 5.47 lakh crore in June 2021 from just 90,000 transactions worth Rs 38 lakh in July 2016. NPCI also introduced India’s homegrown RuPay brand of debit and credit cards and one of the first major UPI-only apps, Bharat Interface for Money (BHIM). The highway toll payments interface NETC, the mandate-based credit and debit facility National Automated Clearing House and BBPS, the channel for recurring utility bill payments were all introduced by NPCI.

Which are the other stakeholders?

India’s payment systems encompass a diverse cross section of players from the banking, non-banking and technology sectors. Though bank accounts are mandatory for the use of all the digital payment systems, non-bank companies such as Google, Amazon, Walmart-owned PhonePe and Facebook-owned WhatsApp all have a presence in the retail payments space. They have used the UPI channel to develop user-friendly payment apps, the data from which can be of great use to internet firms. Of course, the card networks Visa, MasterCard and American Express have been long-time participants in the retail payments space in India. In recent years, telecom players like Airtel and Jio have set up payments banks. Fintech behemoth Paytm also has a payments bank, under which it has consolidated its different payment operations while also accepting public deposits.

What are NUEs and how will they work?

The RBI is set to issue licences for new umbrella entities (NUEs) for retail payments, envisaged as competitors to the NPCI. Six consortiums are reported to have put in applications for NUE licences and the list includes names like Reliance Industries, the Tata Group, ICICI Bank and Axis Bank. The RBI is yet to announce names of its chosen licensees. Industry players expect that the setting up of NUEs will help bring in fresh innovations to expand the user base of digital payments in India.

How much have digital transactions grown over the last year?

UPI transactions grew 110 percent between June 2020 and June 2021, while IMPS volumes grew 53 percent to 303.76 million over the same period. RTGS transactions increased 29 percent year-on-year to 15.41 million in June 2021 and NEFT volumes rose 28.5 percent to 292.33 million.