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An Indian enterprise leading
by example in the Fintech space
When it comes to Financial deals,
New York and London are the torchbearers. India and China, are considered
leaders in Fintech innovation. Fintech has evolved basis some good innovation
in the private sector in India. In the payment and Fintech space in India, NPCI
(National Payment Corporation of India), a government initiative is showcasing
a story of innovation and collaboration between private and public players.
Their success stories of UPI, RuPay, and eNACH have been monitored closely by
the world with high regard. Despite being well known across the globe, NPCI
does not have enough recognition in India. Let’s look at the story of NPCI and
how its products are changing the payment landscape.
The early 90s and India’s
cash-based economy
Indian payment infrastructure was
all managed by the Reserve bank of India (RBI) in the late 90s. In that era,
most transactions were cash-based. There were a few exceptions like electronic
modes of transfers like cheques, DD, etc. For a rapidly growing economy,
payment settlement mechanism cannot be brittle. RBI introduced measures
to address scalability challenges.
Indian Banking Association (IBA)
had introduced the concept of the Swadhan card switch. This network was a
simple one, sharing the ATM network. This scheme ended after a long pursuit of
7 years in 2004, with no success. The famous service of RTGS (real-time
gross settlement) was introduced in India, in 2004. By this time countries like
Cuba, Kazakhstan, Ghana, and Malawi had already adopted RTGS. These measures
were not adequate. RTGS did help the cause, but failed to make an expected
impact.
Change of Guard
An advisory group
of RBI suggested that “RBI should transfer the management of
clearinghouse operations as well as that of the RTGS system entirely to a
separate body/ bodies to be constituted by the association of bankers for the
purpose”. In their vision document 2005-08, RBI took this suggestion
further; time to amend a law from 1934. An amendment was made to British era
(1934) rule. It was time to hand over the payment infrastructure management to
a separate body. In large countries, payment infrastructure was handled by
independent entities. Post amendments to these very old rules, it was time for
setting up the entity into action.
Beginning of NPCI
The change in rules framed in
1934; required public sector banks to hold a majority shareholding in this new
private entity. RBI asked IBA to finalize on a few banks which would
participate in this initiative. Ten banks were finalized, with a mix of 6
public sector banks, 2 Indian private sector banks, and 2 global banks.
Together they participated and began the journey of NPCI. RBI had their nominees
on the board to continue their representation. NPCI started off in 2008 as a
not for profit organization. NPCI worked like a new age Fintech startup, rather
than a typical government organization.
The Blockbuster products of
NPCI
The pace of work at NPCI was super
fast; they started delivering from the word go. they quickly delivered IMPS.
IMPS was a real-time settlement tool between banks. The early success of
IMPSstarted showing the faith of the experiment of NPCI as an independent
entity. From its launch in 2008 to date, NPCI has been pursuing various
digital payment settlement mechanisms, which could transform India from a
cash-based economy to a cashless economy. In this pursuit, they have created
products that are custom-fit for Indian markets. My top three choices of NPCI
products are as below
UPI
Unified Payment Interface (UPI)
is the possibly most used, most appreciated, and most reported product from
NPCI. When the governor of RBI Mr. Raghuram Rajan was in office, he took up
this initiative to have a new age payment mechanism, which would make bank to
bank transfers easy. With UPI, any Indian with a bank account has to just
download an interface app, register his account with some basic yet stringent
registration process. A typical UPI address for example is like
<firstname><lastname>@sbi or <mobile number>@upi. These
addresses are easy to remember and further lead to easy transfers. With just a
few clicks, you can transfer money to anyone, irrespective of the bank your
account is in. There is no need to wait for those 30 mins of adding a bank
account etc. UPI did face some challenges in its early days.
The Modi government utilized the
Demonetization moment as the right time to launch the UPI based BHIM (Bharat
Interface for Money transfer) app. However, Google Pay (earlier Tez)
helped in success of UPI.
The popularity of UPI has
skyrocketed today. As
many as 3 Lakh crore plus rupees were transferred using the UPI app in
September 2020. UPI is growing at a rapid rate and its growth rate far
exceeds most neo banks across the world. So much has been the popularity of UPI
across the globe that many countries have asked NPCI to launch UPI in their
countries. Singapore has been one of the first countries to utilize UPI in
their country. UPI undoubtedly is a Fintech innovation, every Indian should be
proud of.
RuPay
The next in my favorites from
NPCI is RuPay cards. There is a long term vision behind RuPay offering. Visa
and MasterCard dominate the card payment network. China challenged the status
quo by launching Union Pay and has succeeded. RuPay is India’s version of Union
Pay. In its early days, RuPay did face some challenges and was not utilized
much. NPCI clubbed an Insurance offer along with every payment made through
RuPay cards. Along with this RuPay cards charges were much less (50paise)
against those charged by Visa and MasterCard (2 Rs).
Today about 244 million RuPay
debit cards are in circulation. It crossed the milestones of 1
Billion in transaction amount recently. India based card networks
could scale the heights achieved by VISA and MasterCard soon.
eNACH
Remember those days when standing
instructions (for regular bank transfers) required filling up forms and you
faced rejection often? Gone are the days with eNACH offering from NPCI. With a
simple few clicks, you can just simply register your mandate, with less than a
1% chance of rejection. This offering has simplified many loan and investments
based products.
Apart from this NPCI has also
enabled Aadhar based payments, which has started showing good success too. When
you look at these offerings in totality,
- UPI addresses peer to peer transfers and payments
to merchants - RuPay addresses payments to merchants and
- eNACH addresses Investments and Advances.
These three products from NPCI
cover the base of more than 80% of financial transactions. If the growth rate
continues to match as of today’s India shall soon become a dominantly cashless
country, rather than a cash-based country.
Parting Thoughts
NPCI is an example of the
collaboration of regulators, government, and private sector entities. Together,
they not only revived the payment infrastructure of India but have
revolutionized the sector. NPCI is a glaring example of innovation at home with
smart minds coming together for a common objective. NPCI being a not-for-profit
government organization gets little credit but certainly; it has led by example
for various industries across the globe.
