IMPACT ON DIGITAL BANKING SYSTEM AFTER COVID-19
Category: Banking Law
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The banking sector plays a significant part in digital payments by providing digital tools like debit cards, mobile banking, and mobile wallets, especially during the pandemic. The global situation may accelerate the shift towards digital payments. Factors driving digital payment adoption include efficiency, sustainability, and a high level of trust from the public. However, the closure of businesses and lockdowns has led to reduced average transaction volumes. To support recovery and adapt to the new standard, it's essential for the digital payments landscape to evolve quickly and assist in the post-COVID era. This article emphasizes the significance of digital payments during the pandemic, different digital payment systems, the growth of digital payments over the past three years, and the future of digital payments.
Keywords: Digital Payments, Digital Tools, Banking, COVID, Pandemic.
INTRODUCTION-
India's transition to a cashless economy was significantly influenced by two key events - 'demonetization' and 'COVID-19'. One laid the groundwork for digital payments, while the other became a driving force behind the digital payments ecosystem. According to a recent Accenture forecast released on November 24, 2020, it is expected that around 66.6 billion transactions worth USD 270.7 billion will shift from cash to cards and digital payments by 2023 in India, further increasing to USD 856.6 billion by 2030. The current estimation for the payment gateway aggregator market in India is around Rs 9.5 trillion. COVID-19 has acted as a catalyst similar to demonetization for the industry. Digital payment providers have been proactive in responding to the situation by offering enhanced support for essentials such as groceries, masks, sanitizers, COVID-19 insurance, and integration with donations to PM CARES fund and other vital products and services.
DIGITAL PAYMENTS-
Digital payments refer to payments made through digital modes, where both the payer and payee use electronic methods to send and receive money. This eliminates the need for physical cash, and all transactions are completed online. These transfers can be conducted through various channels such as cards (debit/credit), mobile wallets, mobile apps, net banking, Electronic Clearing Service (ECS), National Electronic Fund Transfer (NEFT), Immediate Payment Service (IMPS), pre-paid instruments, or similar means.
MODES OF DIGITAL PAYMENT IN INDIA-
Various initiative to improve the digital banking payments in India are given below-
1. Banking Cards-
Banking cards provide consumers with enhanced security, convenience, and control compared to other payment methods. The wide range of available cards, including credit, debit, and prepaid, offers great flexibility. These cards offer secure payments through 2-factor authentications such as secure PIN and OTP. Examples of card payment systems include RuPay, Visa, and MasterCard. Payment cards empower individuals to make purchases in various settings, saving time and money for both customers and merchants.
2. USSD-
The innovative *99# service operates on the Unstructured Supplementary Service Data (USSD) channel, enabling mobile banking transactions using basic feature phones without requiring mobile internet data. This service aims to promote financial inclusion for the under-banked population.
3. AEPS-
Aadhaar Enabled Payment System (AEPS) is a bank-led model that facilitates online interoperable financial transactions at Point of Sale (PoS) through the Business Correspondent/Bank Mitra of any bank using Aadhaar authentication.
4. UPI-
Unified Payments Interface (UPI) integrates multiple bank accounts into a single mobile application, offering various banking features and seamless fund routing for merchant payments. It also supports peer-to-peer collect requests that can be scheduled and paid as needed. Each bank provides its own UPI app for Android, Windows, and iOS mobile platforms.
5. Mobile Wallets-
Mobile wallets allow individuals to carry cash in digital form by linking credit or debit card information to a mobile wallet application or transferring money online. Instead of using physical cards, payments can be made using smartphones, tablets, or smartwatches. Digital wallets require linking to an individual's account to load money. Most banks and some private companies offer e-wallets, such as Paytm, Freecharge, Mobikwik, Oxigen, mRupee, Airtel Money, Jio Money, and SBI Buddy, etc.
6. Internet Banking-
Internet banking, also known as online banking, e-banking, or virtual banking, is an electronic payment system that enables customers to conduct various financial transactions through a financial institution's website. It encompasses services like National Electronic Fund Transfer (NEFT), Real Time Gross Settlement (RTGS), Electronic Clearing System (ECS), and Immediate Payment Service (IMPS).
7. Mobile Banking-
Mobile banking is a service provided by banks or financial institutions that allows customers to perform different financial transactions remotely using a mobile device. Banks or financial institutions typically offer software, known as an app, for this purpose. Each bank provides its own mobile banking app for Android, Windows, and iOS mobile platforms.
EVOLUTION OF DIGITAL PAYMENTS IN INDIA-
India has made significant progress in its payments framework, particularly in digital payments, due to advancements in information and communication technology as well as the guidance of the Reserve Bank of India (RBI).
The introduction of online banking in the 1990s, facilitated by the internet, revolutionized financial services in India. The RBI has been instrumental in driving the evolution of digital payments in the country, as outlined in the 1998 publication "Payment Systems in India."
The Payment and Settlement Act of 2007 defines digital payments as electronic funds transfers, encompassing various transactions initiated through instructions, authorizations, or requests to a bank, including point of sale transfers, ATM transactions, direct deposits or withdrawals, phone or internet-initiated transfers, and card payments.
Significant milestones in the development of the payments framework include the introduction of MICR clearing in the 1980s, Electronic Clearing Service and Electronic Funds Transfer in the 1990s, issuance of credit and debit cards by banks, establishment of the National Financial Switch in 2003, introduction of RTGS and NEFT in 2004, implementation of the Cheque Truncation System (CTS) in 2008, introduction of second-factor authentication for card-not-present transactions in 2009, and the enhanced RTGS in 2013.
The establishment of the National Payments Corporation of India (NPCI) in 2008 played a key role in leading the development of the retail payments framework. Additionally, non-bank entities have been involved in the issuance of prepaid instruments, including mobile and digital wallets, complemented by initiatives such as grid-wise operations of CTS, interoperability on NACH, IMPS, NFS, RuPay, APBS, AEPS, National Unified USSD Platform (NUUP), UPI, and BHIM application.
These advancements reflect the evolution of the digital payments framework in India, followed by the significant initiative of the Indian Government in establishing the Committee of Digital Payments in August 2016 under the Chairmanship of Ratan P. Watal, Principal Adviser, and NITI Aayog.
After the demonetization in November 2016, the adoption of digital payment methods in India experienced a significant boost. Demonetization prompted Indians to shift towards cashless methods, despite the hidden costs, but the reliance on cash returned once the pressure eased.
GROWTH FACTORS FOR DIGITAL PAYMENTS IN INDIA-
Some reasons given below why it makes sense to adopt digital payments methods are as follow-
1. Convenience and Speed-
Digital payments offer unparalleled convenience and speed, allowing you to pay bills, purchase transport tickets, and make transactions in a matter of seconds, without the hassle of handling physical cash.
2. Security-
The regulatory body overseeing payment regulations in India prioritizes the security of its citizens, implementing measures such as Additional Factor of Authentication (AFA), real-time transaction alerts, biometric/Aadhaar-based authentication, and robust fraud mitigation to protect transactions.
3. Consumer Safety and Protection-
Digital payment instruments provide consumer safety and protection, enabling users to block them in case of loss, limit financial exposure, raise chargebacks and disputes for erroneous transactions, and receive liability coverage in case of fraud.
4. Financial Gains-
To encourage digital payments, the government and payment instrument issuers offer incentives such as cash back schemes, discounts, loyalty programs, and insurance against fraud, providing financial gains to users.
5. No Financial Leakages-
Initiatives like Direct Benefit Transfers (DBT) and Public Distribution System (PDS) aim to minimize financial leakages and ensure that customers receive their entitled benefits and subsidies without bureaucratic obstacles, thanks to the transparent electronic trail that tracks expenses and subsidy transfers.
WAY FORWARD-
For smooth implementation of cash less system in India, a wide variety of measures are needed by the Government. It will have to bring transparency and efficiency in e-payment system, strategies licensing payment banks, promoting mobile wallets and withdrawing service charge on digital payments, etc.
Increase digital literacy in India so that digital transactions can be increased as well as the coefficient of safety factor rises. Increase in digital literacy can definitely decrease the presently occurring banking frauds. Strengthen the cyber infrastructure and boost cyber security in India to reduce hacking and banking theft incidents.
As the digital transfer of money is totally technology based the cyber security factor is essential because even a single security breach can shake confidence of people in digital transactions. Boost mobile infrastructure in the country. Most of the digital payments are now handled by mobile devices, therefore the operating systems and android versions should be made compatible to increase the confidence in digital payments.
Digital payments played an important role in this pandemic. In view of the current situation in which individuals were forced to maintain a physical distance, digital payment modes were actually being adopted. However, digital payment modes play a very beneficial role in the face of this critical situation. Digital payments in India have risen since the Pandemic.
The Digital India program is the Indian government's key outcome, whose vision is to transform India into a digital society and an information economy. One of the positions Digital India professes is "Faceless, paperless, cashless”. There are different digital payment methods available as part of encouraging cashless transactions and transforming India to a business with no cash. It is likely that demonetization would be characterized as a game changer for the Indian economy. Demonetization, on the other hand, leads to booming cashless payments. All payments will be made in this futuristic world using contactless cards, cell phone apps and other electronic means, while notes and coins will be eliminated.
In terms of using UPI as a fast, stable and instant digital payment process, the initiative pushes a wider public message. We have even attempted to use some celebrities to push the cause that we have built UPIchalege.com Microsite where you can find all valuable details on how to safely use UPI. Obviously, technology has made our lives simpler. Electronic payments are one of the technological developments in banking, finance and trade. Electronic Payments (e-payments) refers to the technical advancement that helps us to electronically conduct financial transactions, eliminating long queues and other problems. Electronic Payments gives people more flexibility to pay their taxes, permits, penalties, fines and transactions at unconventional places and 365 days of the year at any time of the day.
CONCLUSION-
Despite facing challenges, people continue to be drawn to digital payment systems due to their convenience, time-saving nature, cashless transactions, and freedom from banking hours. The COVID-19 pandemic has further accelerated the shift towards digital payments as social distancing and touchless services became the new norm, leading to a surge in their usage.
Post-pandemic, virtually every store has embraced digital payments for both receiving and making payments. The government is actively promoting the adoption of digital payments, particularly in light of social distancing and the COVID-19 crisis, a move that was not as forceful in the past.
While the transition from offline to online payments has been ongoing, the recent lockdowns due to COVID-19 have significantly influenced customer behavior. The National Payments Corporation of India (NPCI) has been actively encouraging both customers and essential service providers to shift to digital payment systems for enhanced security.
During the lockdown, the Reserve Bank of India (RBI) and the government have been advocating for the adoption of digital payment methods to ensure the public's safety. NPCI and various state governments are working to onboard more essential service providers onto digital platforms. The government has also been leveraging social media to promote online payments and discourage the use of cash.
RBI and the government consistently highlight the various digital payment options available to customers, such as NEFT, IMPS, and BBPS, which operate 24/7. The digitization of the banking sector, facilitated by smartphone usage, is set to meet the rising expectations of the population and reduce human errors while enhancing convenience. Businesses no longer need to adhere to strict banking hours, as transactions can now be conducted at any time.
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WRITTEN BY:
ALOK G. CHHAPARWALGUIDED BY: ADVOCATE ANIK
