Nandan Nilekani-led committee on promoting digital payments in India, which was formed by the Reserve Bank of India in January this year, has asserted that moving from the issuance or supply side of the digital payments ecosystem to acceptance or demand side is the “key to deepening digital payments,” said the report submitted by the committee recently to the RBI.
While a wide range of payment services is available on the issuance side backed by robust payments infrastructure including Bhim UPI, PoS, digital wallets, card networks etc., on the acceptance side the high-cost structures such as interchange fees and limited financial services offerings limits merchants from accepting digital payments, the report added.
The committee is targetting for a 10x growth in the number of digital payments in India over the next three years by focusing on low value-high volume and low-cost transactions. This will reduce cash requirements “over a longer period.” The growth may also lead to corresponding 3x increase in digital transaction users from around 100 million to 300 million.
India’s digital transaction volume in FY19 stood at around 24 billion led by UPI, debit cards and wallets up from close to 15 billion in FY18 led by wallets and debit cards, the report said.
Further, the committee has recommended cutting the interchange fee on card payments by 15 basis points to incentivize acquirers to sign up merchants. Also, it said suggested setting up of ‘Acceptance Development Fund’ for “improving acquiring infrastructure” at Tier IV, V, and VI cities for optimum utilisation of cards.
Customers should also be allowed to initiate or accept “a reasonable number” of digital payments without any charges. Also, the committee suggested promoting BHIM Aadhaar Pay for users not having mobile phones to make digital payments from their Aadhaar-enabled bank accounts.
In order to enhance acceptance of digital payments among small merchants, the committee suggested the government to continue the scheme to refund merchant discount rate for under Rs 2,000 transactions for the next two years.