## The central bank has played a key role in the country’s digital payment boom

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### RBI leadership and institutional origins
- The Unified Payments Interface (UPI) system was introduced in 2016.
- The National Payments Corporation of India (NPCI) was formed in 2006 by the RBI and Indian Banks’ Association as an umbrella institution for digitalization of retail payments, incorporated as a nonprofit intended to provide India’s people a public good.
- The RBI fostered a varied ecosystem of payment systems including RuPay, the National Financial Switch cash machine network, and a payment system using the national identity program to reach underserved areas.
- Quote: “RBI was determined that a country our size needs multiple payment systems so citizens can choose from multiple payment options,” — NPCI CEO Dilip Asbe.
- Quote on public-good approach and promotion of UPI merchant payments: “A system like UPI cannot come into any country unless the central bank and the government of that country are keen to bring in such an innovation, which democratizes the payment system to the smallest value and the most reasonable cost. UPI is nearly free today for consumers in India, and the government is providing incentives for promotion of UPI merchant payments.” — Dilip Asbe

### Scale and growth of digital payments (key statistics)
- Digital payment volume in India has climbed at an average annual rate of about 50 percent over the past five years.
- UPI expansion has been about 160 percent annually.
- Transactions more than doubled, to 5.86 billion, in June from a year earlier.
- Number of participating banks jumped 44 percent, to 330.
- Transaction values nearly doubled in the same period.
- NPCI projects growth for individual digital payment users is set to triple in five years to 750 million.
- NPCI projects merchant users could double to 100 million.
- UPI for feature phones introduced by the RBI in March can potentially connect 400 million users in distant rural areas.
- Paytm has more than 400 million users.
- Aadhaar national identity program has 1.3 billion users.

### Technology foundations and financial inclusion
- The India Stack, a digital identity and payment system built on an open application programming interface (API), underpins UPI and has been a force for greater financial inclusion.
- Open-stack technology and promotion of private fintech alongside traditional public sector banks accelerated adoption and reduced costs to citizens: “The government promoted open-stack technology so that people can try to integrate very quickly… These services are also available at no cost to the citizen, and that is the uniqueness of India’s digital transformation.” — Dinesh Tyagi, CEO of CSC e-Governance Services India
- Integration of the national identity program, Aadhaar, with digital payment infrastructure helps bring services to underserved populations.

### Behavioral drivers and COVID acceleration
- The younger generation has driven adoption of cashless methods such as UPI and wallets, enabling quick and convenient monetary transactions for small-value sales and reducing hassles of handling cash.
- The pandemic accelerated contactless digital transactions, especially for small amounts, as people sought to protect themselves from the virus.

### Policy direction: CBDC exploration and implications
- The RBI is exploring a central bank digital currency (CBDC) — a digital rupee — aimed at monetary policy objectives of financial stability and efficient currency and payment operations.
- RBI Deputy Governor Rabi Sankar: CBDC could have advantages for currency management, settlement risk, and cross-border payments.
- Quote on crypto implications: “CBDCs could actually be able to kill whatever little case there could be for private cryptocurrencies.” — Rabi Sankar

*Source: Finance & Development, September 2022 (digital-journey-india).*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2022/september/digital-journey-india.pdf_