Planning the next Fintech revolution in India

UPI is among the several landmark reforms implemented by the Reserve Bank of India to bring about a quiet fintech revolution. As a member of the country’s burgeoning fintech ecosystem, I have observed the change up close. Digital transformation combined with customer protection has been the main theme of RBI’s reforms so far. The JAM trinity of Jan Dhan, Aadhaar and Mobile, coupled with UPI, helped India make rapid progress towards digital payments. Now there has been a multiplication of digital payment options including BBPS and Bharat QR code among others.

The progressive development helped India reach new milestones in digital payments. By 2022, India boasts the highest global fintech adoption rate at 87%, against the world average of 64%, according to the Union Commerce and Industry Minister, coincidentally at a time when the country assumed the G20 presidency. As of the third quarter of the current financial year, the country’s financial institutions have facilitated 23 billion online transactions. And in 2022, RBI gave UPI a further facelift by expanding the use cases from UPI Lite to enabling credit cards on UPI. UPI changed the face of India’s payment system. We did ~243 million UPI transactions every single day! I consider this an extraordinary achievement, and a large part of the credit goes to the favorable regulatory regime.

While much has happened this year, there are four reforms that I consider the most impactful. The first is that cardless payments via credit card UPI link was one such initiative. Here, RBI eliminated the need to carry physical cards by allowing RuPay credit card linking with Bhim UPI. Customer problems around card storage were also solved through card tokenization. Realizing the importance of data security, RBI introduced a card tokenization feature. To ensure that raw card details are not stored, the card number was replaced with a proxy code called a “token”. Soon after, there was a rush to tokenize cards, so much so that 350 million tokens were created by the October 1st deadline.

Continuing with the customer-first approach, RBI also made adjustments to mandate pre-debit notification for recurring payments. The RBI addressed the concerns of unknowing customers by mandating banks to send an alert 24 hours before a recurring card-based transaction. Nearly 59 million new mandates were registered in June 2022.

With more Indians going digital, privacy has been given utmost importance by the regulator.

RBI’s digital lending guidelines prevent data misuse by enabling direct credit to your bank account and preventing biometric data storage. This was another step by the RBI to ensure a secure lending ecosystem for customers.

As India takes a prominent position on the global fintech scene, I strongly believe that the upcoming reforms will prove fruitful. We are ready for a paradigm shift with the implementation of Central Bank Digital Currency (CBDC). CBDC, commonly referred to as e-Rupee, will take the burgeoning fintech ecosystem a step ahead by reducing the maze of payment gateways. The digital rupee, a digitized version of the currency, will run on the blockchain to power all digital transactions.

While India has made significant strides in fintech, this is just the beginning of the journey. A deeper financial integration of the country’s hinterland through “sachet” products can strengthen our growth prospects. Affordable access to credit through closer partnerships between banks and fintech players will be another dimension to focus on. Looking at our past track record, I see India as the global fintech market leader by 2025.

With India at the forefront of the G20, the lessons learned from the country’s fintech success story may soon become best practices for the global economies to follow.

Arif Khan is Head of Innovation at Razorpay.