India is emerging as a fintech nation and becoming the third-largest growing fintech economy in the world. India’s robust DPI has played a pivotal role in enabling the country’s digital transformation, providing citizen-centric and transparent governance services. India’s fast-growing population, world-class DPI, and proactive regulations have underpinned the Fintech industry’s growth, highlighted the Economic Survey 2023-24 on Monday.
India is among the fastest-growing fintech markets in the World, hailing as the third-largest growing fintech economy, it stated.
With the objective of India emerging as a fintech nation, the Government has launched many flagship schemes such as the Digital India Mission, Make-in-India, etc. Greater emphasis has been given to the creation of DPI such as Aadhaar, e-KYC, Aadhaar-enabled Payment System, UPI, Bharat QR, DigiLocker, e-sign, Account Aggregator, Open Network for Digital Commerce, etc.
These DPIs can be utilised on a shared basis by different players to ensure optimum outcomes. Their usage has brought transparency, scale operation and timely delivery of financial services to the public.
Advances in DFI (Digital Financial Inclusion) have enabled millions of people in the formal and vast informal economy to accept payments, settle invoices, and transfer funds anywhere in the country with just a few screen taps. These advances are built on the India Stack, a comprehensive digital identity, payment, and data-management system.
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India Stack consists of three interconnected layers that provide a digital identity to every Indian while facilitating easy, cost-free, mobile-first digital transactions.
The three critical components of India Stack are the Identity Layer, payment layer and data governance layer. Regarding the identity layer, Aadhaar has been instrumental in transforming India’s authentication ecosystem. It has facilitated the KYC process, reducing the cost of conducting e-KYC from USD 12 to 6 cents, extending banking to millions of Indians and improving financial inclusion.
In the case of the payment layer, the UPI has revolutionised the country’s payment system. The success of UPI has been enhanced by the expansion of smartphone usage in India, with more than 116.5 crore smartphone subscribers as of 31 March 2024. The value of transactions conducted on the UPI platform has increased multifold from ₹0.07 lakh crore in FY17 to ₹200 lakh crore in FY24.
The data governance layer focuses on ensuring ownership and control over the user data to its rightful owners.
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Financial Inclusion through fintechs
The Economic Survey highlighted how fintech has been the cornerstone to help achieve financial inclusion, with the help of increased digital payments amongst individuals and other technological innovations.
It stated that the focus has shifted from ‘every household’ to ‘every adult’ in terms of financial inclusion.
There has been a shift in focus of the financial inclusion strategy in the country, from ‘every household’ to ‘every adult,’ with added emphasis on the usage of accounts by enhancing direct benefit transfer (DBT) flows through these accounts, promoting digital payments using RuPay cards, UPI etc.
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The RBI launched UPI123Pay in March 2022 as an option to make UPI payments for feature phones, and the National Payments Corporation of India (NPCI) introduced UPI Lite, an on-device wallet service provided by select banks that allows low-value transactions up to Rs 200 through the BHIM app.
These innovations are steps towards accelerating the digital adoption process in India by creating a more prosperous and inclusive ecosystem that can accommodate larger sections of the population. India is also collaborating with several countries to bring more efficiency to national and cross-border payment systems, the survey further added.
Project Nexus
RBI has been collaborating bilaterally with various countries to link India’s Fast Payments System (FPS), that is, UPI, with their respective FPSs for cross-border Person to Person (P2P) and Person to Merchant (P2M) payments.
The RBI joined Project Nexus, a multilateral international initiative to enable instant cross-border retail payments by interlinking domestic FPSs. The Nexus aims to connect the FPSs of four ASEAN countries (Malaysia, Philippines, Singapore, and Thailand) and India, who would be the founding members and first mover countries of this platform. An agreement to this effect was signed by the BIS and the central banks of the founding countries on 30 June 2024.
The platform is expected to go live by 2026. Once functional, Nexus is expected to play an important role in making retail cross-border payments efficient, faster, and more cost-effective, the Economic Survey further stated.
