Though the buzz about India being a “Digital Economy” had started after Demonetization, the concept of

Digital payments existed right from the early 1990s in India. The first digital payment system launched
by RBI was ECS (Electronic Clearing Service)- comprising of ECS Credit and Debit. Interconnectivity of
ATMs across the country was made possible by the National Financial Switch in 2003. In 2005, RBI
created a new department called “Department of Payments Systems” with a vision of shaping India as a
less-cash economy.

Digital Payments was defined by “The Payment and Settlement Act, 2007”. This act defined “electronic
funds transfer” as funds being transferred by a person to a bank, either to debit or credit a bank account
through electronic means. It also includes transactions via telephone, internet, card payment, ATM
point, direct deposits or withdrawals and point-of-sale transfers.

The payment segments are divided broadly into 2 segments:

 Systemically Important Financial Market Infrastructure (SIFMIs)

 Retail Payments

Contribution of these 2 segments:

Systemically Important Financial Market Infrastructure:

Financial Market Infrastructure (FMI) is further segmented into 4 instruments of payments. They are:

1. RTGS (minimum of INR 2lacs- started in 2004)

 2. CBLO (started by CCIL in January 20,2003)
3. G- Securities
4. Forex Clearing (introduced by CCIL in November 8, 2002)

Retail Payments:

This has a large user base and are categorized into 3 divisions. They are:

1. Paper Clearing
2. Retail Electronic Clearing
3. Card Payments

They further have the instruments such as CTS- Cheque Truncation System (started in 2008), Non-MICR,
ECS DR/CR, NEFT (2004), IMPS, UPI, *99#, NACH, Debit Cards, Credit cards(1990s) and Pre-paid
instruments. The development of Retail Payments is started in 2008 and led by the NPCI (National
Payments Corporation of India.

Introduction of Non-bank entities was done for the issue of PPS (Pre-Paid Instruments), mobile and
digital wallets. Initiatives by NPCL like grid-wise operations of CTS, UPI and BHIM application, Rupay,
NACH, NFS have flourished the ecosystem of digital payments in India. During 2017-18, digital payment
platforms like BHIM-UPI, BHIM Aadhaar and Bharat QR Code have contributed to an impressive growth.
Along with these Government initiatives, Paytm and PhonePe the entry of Global giants of technology
like Google’s Payment application- GoogleTez seems to transform digital payments in India with
increasing opportunities in this sector.
Reference: http://niti.gov.in/writereaddata/files/document_publication/DigitalPaymentBook.pdf