NPCI playing a key role in India’s push towards cashless economy

NPCI was set up as an umbrella institution for retail payment systems, to facilitate affordable payment mechanism


New Delhi: It’s the organization that is changing the way payments are made in India—from launching a card payment settlement system that competes with Visa and MasterCard, to setting up a platform to facilitate instant money transfer, the National Payments Corporation of India (NPCI) is playing a key role in India’s push towards a cashless economy.

Electronic payments technology—real time gross settlement and national electronics funds transfer—grew three-fold in volume from 2013 to 2016, according to a 2018 vision statement for payment and settlement systems in India, released in June by the Reserve Bank of India (RBI).

Backed by the central bank, NPCI was set up in 2008 as an umbrella institution for all retail payment systems and to facilitate an affordable payment mechanism in the country. It has multiple promoter banks including State Bank of India, Canara Bank, ICICI Bank, HDFC Bank and Citibank.

“NPCI is an infrastructure company. Once it builds pathways, different payment organisations can ride on them. They closely work with individual banks, payment players etc. So it plays a very critical role in the economy,” said Vivek Belgavi, fin-tech leader, PwC India.

A report published by Google (Alphabet Inc.) and Boston Consulting Group in July predicts the digital payments industry in India has the potential to grow ten times to $500 billion by 2020 and contribute 15% to the gross domestic product (GDP).

Electronic fund transfers had grown to Rs.6.3 trillion as compared with paper clearances of Rs.6.1 trillion in November last year, as per RBI data reported by Mint in January.

NPCI last month launched the Unified Payment Interface (UPI), a platform to facilitate instant money transfer. It is potentially its most transformative platform, which is expected to allow mobile phones to double up as virtual debit cards. Currently, in an inter-bank payment mechanism, customers need to feed in details such as the bank account number, IFSC code etc. The UPI platform aims to simplify that process , allowing customers to safely and instantaneously transfer funds almost as easily as they send a text message. It is expected to make both peer-to-peer transactions and peer-to-merchant transactions far simpler.

“I think about 20% of the e-commerce transactions drop at the last moment when maybe the OTP (one-time password) response comes late and the transaction period expires—this is a big loss to the e-commerce players. UPI will make these payments convenient and secure”, said a person associated with one of the platforms on which UPI functions who did not want to be identified.

However, he also pointed out that UPI will face challenges like any new technology.

For instance, due to a lack of awareness, people may not trust the digital mode of making payments: “The acceptance of UPI will increase with AN increase in smartphone usage.”

In 2012, NPCI launched its domestic debit card payment network, RuPay, to provide an alternative to international cards. As of October 2015, more than 220 million Indians owned RuPay cards, according to the NPCI website.

RuPay came two years after NPCI launched its Immediate Payment Systems, which allows instant inter-bank transfer of funds, so users can send money from one bank account to another on a real-time basis round the clock. As of February 2015, the network handled more than Rs.8,000 crore of transactions a day—a number that is expected to increase with the use of mobile phones, Mint reported .

The organization is headed by chairman Balachandran M., who worked for Bank of Baroda for more than 33 years in different capacities in India and abroad and thereafter headed Bank of India. The managing director and chief executive officer is A.P. Hota, a veteran of RBI where he worked in the area of design and implementation of payments systems.

In 2009, NPCI received authorization for the operation of the National Financial Switch Network, an interconnected network of automated teller machines (ATMs) that allows users to perform inter-bank transactions and banking services.