Centre to give incentive for banks to promote digital payments

The Union Cabinet approved an outlay of ?2,600 crore to promote payments using RuPay cards and the Unified Payments Interface (UPI).

Background:

• The total digital payments transactions have registered a year-on-year growth of 59%, rising from Rs.5, 554 crore in FY2020-21 to Rs.8, 840 crore in FY2021-22.
• The Government of India is taking various initiatives for promotion of digital payments across the country.
• Over past years, digital payment transactions have witnessed tremendous growth.
• During the Covid-19 crisis, digital payments facilitated functioning of businesses, including small merchants, and helped in maintaining social distancing.
• UPI has achieved a record of 782.9 crore digital payment transactions with a value of ? 12.82 lakh crore in the month of December 2022.
  
  

About the initiative:

• Banks will be provided this incentive money to promote such digital payments, the Cabinet said in a press release.
• The fund will be paid to banks in view of the lack of a Merchant Discount Rate (MDR), a commission on digital transactions — for UPI and RuPay
• This regime has led to complaints from the Reserve Bank of India (RBI) and banks, which have been worried about the sustainability of building digital payments infrastructure in the absence of payments needed to scale and maintain them.
• The scheme will also promote UPI Lite and UPI 123PAY as economical and user-friendly digital payments solutions and enable further deepening of digital payments in the country.
• This incentive scheme will facilitate building of a robust digital payment ecosystem and promoting RuPay Debit Card and BHIM-UPI digital transactions.

What is digital payment system?

• Digital payment system is a way of payment which is made through digital modes- completely online. No hard cash is involved in digital payments.
• In this system, payer and payee both use digital modes to send and receive money.
• It is also called electronic payment.
• Example- Internet Banking, Debit Cards, Credit Cards, e-Wallets.

Different digital payment modes in India:

• Cards:
  • Banking cards offer consumers more security, convenience, and control than any other payment method.
  • There is wide variety of cards available – including credit, debit and prepaid.
• Internet Banking
  • It is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institution's website.
  • Different types of online financial transactions are: National Electronic Fund Transfer (NEFT), Real Time Gross Settlement (RTGS), and Immediate Payment Service (IMPS).
• Unstructured Supplementary Service Data (USSD):
  • This service allows mobile banking transactions using basic feature mobile phone (dialling *99#), there is no need to have mobile internet data facility for using USSD based mobile banking.
  • Key services offered under *99# service include, interbank account to account fund transfer, balance enquiry, mini statement besides host of other services.
• Mobile Banking
  • Mobile banking is a service provided by a bank that allows its customers to conduct different types of financial transactions remotely using a mobile device.
  • It uses software, usually called an app, provided by the banks or financial institution for the purpose. Each Bank provides its own mobile banking App.
• Unified Payments Interface (UPI)
  • It is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood.
  • Each Bank provides its own UPI App.
• Mobile Wallets
  • It is a way to carry cash in digital format. Instead of using physical plastic card to make purchases, we can pay with our smartphone, tablet, or smart watch.
  • An individual's account is required to be linked to the digital wallet to load money in it.
• Aadhaar Enabled Payment System (AEPS)
  • AEPS is a bank led model which allows online interoperable financial transaction at PoS (Point of Sale / Micro ATM) through the Business Correspondent or Bank Mitra of any bank using the Aadhaar authentication.