Why Did RBI’s Digital Payments Index Jump To An All-Time High In March?

The Reserve Bank of India’s (RBI) digital payments index (DPI) has reached an all-time high of 349.3 points, up by 29.08 per cent, in March 2022 compared with 270.59 points in the same month a year ago. The RBI said it reflects India’s significant growth in digital payments.

“The RBI-DPI index has demonstrated significant growth, representing the rapid adoption of digital payments across the country in recent years,” an RBI statement said on July 27.

The DPI index was announced in February 2020 as part of RBI’s Statement on Developmental and Regulatory Policies, and it was decided to be published on the central bank’s website on a semi-annual basis from March 2021 onwards every four months.

“The RBI-DPI captures the extent of digitisation of payments across the country. This index helps the regulator understand the impact and spread of digital payments in rural, urban, and semi-urban areas, as well as understanding the impact of policy decisions made by the RBI,” said Pranay Jhaveri, Managing Director - India and South Asia, Euronet Worldwide, a payments company.

Anuj Khosla, CEO, digital business, Hitachi payment services, said in a statement, "The growth in digital payments can be attributed to reasons such as increased availability of acceptance infrastructure, increased penetration and usage of instruments such as UPI, QR and cards. The RBI-DPI index has demonstrated substantial growth, representing the rapid adoption and deepening of digital payments across the country in recent years."

This index is broadly comprised of five parameters measuring the penetration of digital payments across India over varying periods. As per the FAQs published by the RBI, those parameters and their weightage in the index are:

• Payment Enablers (weight 25 per cent).
• Payment Infrastructure – Demand-side factors (10 per cent).
• Payment Infrastructure – Supply-side factors (15 per cent).
• Payment Performance (45 per cent).
• Consumer Centricity (5 per cent).

The list includes other sub-heads given below:

Possible Catalysts For Digital Payments Growth In India

Shams Tabrej, founder and CEO of Ezeepay, a fintech company, said that the Indian government has been encouraging and publicising online payments aggressively, with 'Digital India' being the guiding force for various financial and economic decisions.” Consequently, “digital payments recorded 29 per cent annual growth in March 2022”.

Euronet’s Jhaveri also shared data regarding what digital payment instruments have led to the biggest increase in the RBI’s DPI index. He said, “In FY22, UPI processed more than 46 billion transactions amounting to over Rs 84.17 trillion. This has been the biggest contributor to the increase in DPI index, followed by an increase of payment transaction on the credit card, debit cards, and PPI instruments.”

Other Reasons For Digital Payments Growth

Pandemic Fueled Demand: According to Tabrej, the pandemic has been the biggest promoter of digital payments growth in India, which accelerated the adoption of digital payment, propelling the country towards “cashless' alternatives”. 

Restarting of Economy: According to Jhaveri, although several factors have contributed to the growth of digital payments, the resumption of economic activities was the biggest stimulus. Other factors like the easing of restrictions for travel, offices, and business activities have also contributed to increased UPI transaction volumes. 

“Increased use of QR code or UPI by merchant payments in rural India showcases the increased penetration of digital payments across hinterlands of India, and it will continue growing,” added Jhaveri.

Internet Availability: According to Mandar Agashe, chairman of Sarvatra Technologies, a fintech payment company, India’s digital infrastructure has grown rapidly, and consumers have been increasingly using smartphones and the internet.

“With rapidly growing digital infrastructure, upsurge in the use of smartphones, low-cost internet, and a host of technological innovations, India has been rapidly transitioning to a digital economy. However, UPI has clearly emerged as the most influential catalyst in the digital payments race,” added Agashe.

Regarding the zero merchant discount rate (MDR) on RuPay debit cards and UPI transactions below Rs 2000 and its impact on the use of digital payments in India, Jhaveri said, “it surely does add up at present juncture, as all of these transactions are free at the moment and the operations are happening in a seamless manner. However, it is a deterrent to further growth and innovations that merchants and customers are expecting or wanting to happen in the digital payment space.”

Anand Kumar Bajaj, founder, MD and CEO, PayNearby said, "The adoption of digital payments in India, riding on the back of UPI, has been on a steady rise, and the RBI’s Digital Payments Index (RBI-DPI) ratifies this significant growth. Besides, no MDR on RuPay and UPI payments further accelerated its acceptance among the merchants. By offering crucial market insights, the index will further aid in mapping the differences and achieving the financial inclusion targets much earlier."

"Digital payments grew due to multiple factors such as demonitisation, implementation of GST regime, strong government push towards Cash-Free economy, Population scale implementation of UPI by big techs and to some extend government’s subsidy on RuPay debit cards and UPI transactions below Rs 2000. However in long run and for sustainability , there should be value for all stakeholders such as acquirers, PSPs, issuers, others," added Khosla.

Click here to read more about how much MDR NPCI proposed to charge for RuPay credit card UPI transactions-https://www.outlookindia.com/business/what-are-newly-proposed-mdr-rates-for-upi-linked-rupay-credit-card-transactions--news-212264