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The recent times have witnessed an exponential rise in the globalization of businesses. As such, the demand for easier and faster payment solutions has catapulted. It is estimated that India alone would have yearly digital transactions worth $1 trillion by 2025. India’s smartphone usability will double by 2022 and reach up to 600 million. With commercialization at its peak, there is a need for an instant deal between consumers and merchants.

Why cash may soon become obsolete

The use of cash poses several challenges to the people as well as government. Since cash is a physical instrument, it requires printing, storage, transport, and security. All of these functions require maintenance and hence the expenses which come with it.  Even the banks have to install ATM counters which require security and maintenance.  Also, with the digitization of currency and the hassles that come with the owning of hard cash, real-time transactions have become very popular. The only hurdle now remains the availability of internet in every corner of the country. With that being taken care of too, a cash-free India does not seem a distant reality.

What is RTP or UPI?

Real-time payments or RTP as they are known in the US, in India it is known as UPI or Unified Payments Interface. It is a system that powers multiple bank accounts into a single mobile application, merging several banking features, seamless fund routing & merchant payments under one umbrella. Each bank has its own UPI app for Android and iOS platforms. One of the most popular third-party apps of late has been Google Pay which even rewards you for every transaction.

UPI as a digital payments instruments was launched by former RBI Governor Raghuram Rajan in 2016.  Prime Minister Narendra Modi added to the momentum when he launched the Bharat Interface for Money or BHIM app on December 30.  Since then, digital transactions have seen a steep rise.

UPI’s growth through time:

In the past 15 months, transactions on India’s popular digital payment platforms has risen to around 105 million in November from 92,000 in August 2016, according to the National Payments Corporation of India show.

Year

Approx Volume (No.)Approx Value (₹ Cr)

Aug - 16

92,000

3

Nov - 16

285,000

100

Dec - 16

2 Million

706

Jun - 17

10 Million

3,067

Sep - 17

30 Million

5,293

Nov - 17105 Million

9,679

Source: Economic Times

How Real-time payments work

Many of the real-time payment solutions offer an instant interbank and intrabank transfer which works 24x7 and can be initiated via smartphones, tablets, digital wallets, and the internet. Moving cash from one account to another has never been easier than today.

A typical Person to person real-time payment is carried out through a series of payment messages. The sender sends a payment instruction via a payment channel approved by the financial organization or bank.  This instruction then goes to the bank where it is ensured that the funds requested are available. The instruction is then sent to the receiver’s bank via a secure RTP core infrastructure which validates the transaction. The receiving bank acknowledges the message and sends a message back to the RTP core infrastructure accepting or rejecting the transaction. When approved, the bank initiates the payment to the receiver’s account and the transaction is complete. All this happens in real time.

Potential benefits of real-time payments

Apart from the obvious benefits of instant money transfer, there are many other advantages of RTP. Real-time payments improve liquidity. It helps businesses in their daily operation by speeding up the process and making transaction simple, safe and secure. RTP ensures better cash management of merchants and consumers as well as financial institutions. Buyers no longer need to go through the hassles of obtaining a cheque for significant purchases. Less physical cash means less opportunity to get robbed. You can easily pay your hospital bills, claim your insurance, book tickets, pay EMIs and other transactions without physically being present everywhere, which otherwise consume a lot of time. Additionally, the digital transaction ensures accounting of funds and hence fewer chances of frauds and illegal transactions.

What is driving the growth of real-time payments?

Advancements in technology: With the ease of internet and the availability of smartphones at affordable prices, it is now found with 12% of rural and 58% of urban Indians. Cash is now replaced by digital wallets and pay apps.

Government initiative towards digitization of the economy: The Indian govt has been exceedingly enthusiastic in promoting digital currency. They have come up with various apps and campaigns to market the same. The demonetization has been a critical step in favor of digitization.

Consumer demands: Owing to heavy e-commercialization, many private organizations have been marketing their payment options. Consumers want to have faster and immediate payments to save time.

Banks will be making considerable investments in RTP to integrate faster payments into existing offerings. Corporates are already adapting to this global trend. Considering all this and much more, India seems to have a very promising future of real-time payments.