How Covid-19 fast-tracks digital transformation of payment ecosystem

No doubt, the second wave of the pandemic has taken a grievous toll both in terms of lives and livelihood. And we are living in the portending danger of the third wave of pandemic which is just like a Damocles' Sword hanging over our head.

The pandemic, as the RBI Governor Shaktikanta Das revealed recently, has accelerated the push towards digitalisation with greater adoption of digital payments. It is evident by the fact that in overall, the total digital transaction volume in 2020-21 stood at 4,371 crore, as against 3,412 crore in 2019-20.

Keeping in view the important of converging greater digitalisation with goals of financial inclusion, RBI has taken a host of initiatives. Operationalisation of Payment Infrastructure Development Fund (PIDF), an initiative of the apex bank together with banks and card networks, which will provide the necessary impetus for development of payment acceptance infrastructure in tier-3 to tier-6 centres and north eastern states are just one among them.

This will facilitate greater deployment of electronic payment acceptance facilities (for example point of sale devices) in hitherto untapped areas, thereby furthering the reach of digital payments ecosystem. Similarly, the Reserve Bank of India's (RBI) pilot project in association with banks of making at least one district in each State/UT 100 per cent digitally enabled, which was rolled out a couple of years ago, covering 42 districts, will facilitate greater access and usage of digital payments by the common man.

As on March-end, banks have achieved a digital coverage of 95.9 per cent of individuals, while the achievement for businesses stood at 89.8 per cent. The SLBCs have been advised to give renewed focus and emphasis to ensure sustenance of the digital progress in these identified districts in hilly areas.

Now, let's us have a look at how has been the impact of digital disruption in financial systems. As on March-end, the share of major banks (SBl+HDFC+ICICI) in online retail payments by volume was merely 0.6 per cent. In contrast the shares of major disruptors (Phonepe+Google pay+Paytm) were as high as 94 per cent.

For a decade ICICI Securities was numero uno. Now, Zerodha and Upstox have pushed it to Number three. Earlier, 50 lakh merchant terminals used to be all banks. Now, mSwipe, Pinelabs, Ezetap have tunnelled in. Not only 76 per cent of payment gateway aggregator transactions are through Paytm and Billdesk. RBI now allows cash withdrawals from digital wallets and prepaid cards non-bank payment system operators to use RTGS and NEFT doubles limit of outstanding balance of PPIs to Rs 2 lakh. It shows how digital payment dynamics have changed during pandemic.

The annual report of RBI reveals that the Covid-19 pandemic fuelled the proliferation of digital modes of payments, adding that the prospects for fintech in the country's financial system in the current fiscal will depend upon the degree of entrenchment of digital usage. To sum up, the pandemic has fuelled the proliferation of digital modes of payment, propelling the country towards 'less-cash' alternatives.