The Future of Real Time Payments in India | Mindgate Solutions - Blog

The Future of Real Time Payments in India

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 will have yearly digital transactions worth $1 trillion by 2025. India’s smartphone usability is also expected to reach up to 1 billion users by 2026. 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 the government. Since cash is a physical instrument, it requires printing, storage, transport, and security. All of these functions require maintenance and hence the expenses that 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 Instant Payments are payments made between bank accounts that are initiated, cleared, and settled within seconds at any time. This improves transparency and confidence in payments, helping consumers, banks, and businesses manage their money. 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 payment instrument 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. In other words, UPI has catapulted India’s Digital Payments by enabling real-time payments using QR codes, mobile numbers, and virtual IDs.

UPI’s growth through time:

The following clearly indicates a significant rise in the adoption and use of the Unified Payments Interface (UPI) from 2018 to 2023. The number of banks integrating UPI has increased notably, accompanied by a sharp growth in both the volume and the total value of transactions.

Year Month No. of Banks live on UPI Volume (in Mn) Value (in Cr.)
2018 Dec 129 620.17 102,594.82
2019 Dec 143 1,308.40 202,520.76
2020 Dec 207 2,234.16 4,16,176.21
2021 Dec 282 4,566.30 8,26,848.22
2022 Dec 382 7,829.49 12,82,055.01
2023 Dec 522 12,020.23 18,22,949.42

Source: Economic Times

How Real-time payments work

Many of the real-time payment solutions offer an instant interbank and intrabank transfer which works 24×7 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 transactions 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 hassle of obtaining a cheque for significant purchases. Less physical cash means fewer chances of getting 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 consumes a lot of time. Additionally, the digital transaction ensures the accounting of funds and, hence, fewer chances of fraud and illegal transactions.

What is driving the growth of real-time payments?

Advancements in technology: With the growing ease of internet access and affordable smartphones, 12% of rural and 58% of urban Indians now have accessibility. Cash is progressively being replaced by digital wallets, pay apps, and real-time payments.

Government initiative towards digitization of the economy: The Indian government’s enthusiasm for promoting digital currency is evident. They’ve introduced various apps and campaigns to support this shift. The demonetization played a pivotal role in accelerating digitization, paving the way for RTP payments.

Consumer demands: The surge in e-commerce has led to an increase in organizations promoting various payment options. Consumers are now seeking faster, immediate payment methods to save time, emphasizing the demand for RTP payments.

Banks are actively investing in integrating faster, real-time payments into their existing offerings. Corporates are swiftly adapting to this global trend of RTP payments. With these developments and more, India is well on its way to becoming a frontrunner in the future of real-time payments.