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Digital Payments Ecosystem in India



  Feb 20, 2024

Digital Payments Ecosystem in India



1. What concerns were raised by the Parliamentary Standing Committee on Communications and Information Technology regarding fintech apps?

The Committee expressed concerns about the dominance of fintech apps owned by foreign entities in the Indian ecosystem and recommended promoting local players. It emphasized the need for effective regulation of digital payment apps due to the rising use of digital platforms for payments in India.

2. Why did the National Payments Corporation of India (NPCI) issue a 30% volume cap on transactions facilitated using UPI?

The NPCI issued a 30% volume cap on transactions to address risks and protect the UPI ecosystem as it scales up. This measure aims to ensure market equilibrium by encouraging the growth of UPI through the participation of other existing and new players (banks and non-banks) in the digital payments space.

3. What are the main findings of the report regarding the market share of fintech apps in India?

The report found that foreign-owned fintech companies, such as Walmart-backed PhonePe and Google Pay, dominate the Indian fintech sector in terms of volume, with PhonePe and Google Pay holding significant market shares. In contrast, NCPI’s BHIM UPI held a minimal market share.

4. How does the dominance of foreign fintech apps impact the digital payments ecosystem in India?

The dominance of foreign fintech apps raises concerns about the regulatory feasibility of controlling these apps compared to local ones, given their operation in multiple jurisdictions. It also underscores the challenge in promoting local fintech players within a market heavily influenced by foreign entities.

5. What did the report suggest about the role of local fintech players in the ecosystem?

The report highlighted the “natural advantage” local fintech players have in understanding the customer, ecosystem participants, and the broader market infrastructure in India. It suggests a need for a balanced mix of local and foreign fintech solutions to cater to various areas such as payments, lending, wealth management, and insurance.

6. What concerns about fraud were highlighted by the Committee?

The Committee pointed out the use of fintech companies for money laundering, citing an example of an Abu Dhabi-based app used by Chinese investment scamsters. It noted the difficulty Indian law agencies face in tracking money collected through scams on such platforms.

7. What does the future of instant payments in India look like according to the McKinsey’s Global Payments Report?

The report observed that instant payments in India are expected to contribute less than 10% of future revenue growth due to the absence of transaction fees for the UPI interface. However, it highlighted the benefits of UPI in eliminating the hidden costs of managing cash transactions and enhancing security and access to digital commerce channels.

SRIRAM’s


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