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The beginning of digital payments in India
If you were around during the pre-internet era, you probably had stacks of cash at home. Back then, every financial transaction involved physical money. Salaries were paid in cash, money was spent in cash, and of course, savings were also in the form of physical money. You may have perhaps seen your parents bringing home a paper package with notes of money inside on payday. Your pocket money too may have been physical coins or notes.
Today, we have come a long way from the era when physical money was the be all and end all of financial transactions. It is now possible to live a full life without ever holding a physical note of money in your hand. That’s because everything is digital.
But how did it all begin? What does the history of the digital payment systems in India look like? Let us take a closer look at that in this chapter.
The pre-internet era
Interestingly, the adoption of digital payments in India began even before the internet was born. Back in the 80s, we did not have any internet infrastructure in the country. Yet, there were two products that were being used in place of physical cash by many people. We are talking about credit and debit cards, of course.
Andhra Bank introduced the first credit cards in 1981. This was 30 years after the first bank credit card was introduced in New York. Soon, many other banks in India followed suit and issued their own credit cards. In 1987, HSBC Bank set up the first ATM.
Soon, people started to carry around these little plastic cards instead of a big wad of cash. Cash was still a staple part of the payments industry though - until the internet came knocking.
The advent of the internet
If you really want to put a pin on when the digital payment system in India began, you can trace it back to the mid 90s and early 2000s. In the 90s, the internet started to become wildly popular in India. VSNL Limited was one of the first internet providers, offering internet connections at the speed of 9.6 Kbit per second.
People then began to sell stuff online. In other words, the e-commerce industry was born, although it was in its nascent stages. But selling things online gave way to the need for an online payment system.
BillDesk was founded in 2000, on the cusp of the new decade. It was the first payment aggregator in the country, and it made digital payments easier for e-commerce customers. In 2005, digital transactions like fund transfers got easier, thanks to the introduction of National Electronic Funds Transfer (NEFT).
Simultaneously, the popularity of debit cards also soared in the 2000s, leading to easier digital payments both online and in-store. The gamut of choices available in the digital payment systems in India was clearly on the rise.
More digital payment options in the ecosystem
The National Payments Corporation of India (NPCI) was established in 2008-09. This umbrella organization oversees the retail payment systems in India and has been leading many developments in this area over the past decade.
And by the time 2010 came around, we had several online payment channels such as credit and debit cards, Magnetic ink character recognition (MICR) clearing channels, Electronic Clearing Service (ECS), NEFT and Real Time Gross Settlement (RTGS).
In the years that followed, the NPCI rolled out several other digital payment options to strengthen the payments system in India. Here is a preview of some of these solutions.
RuPay is one of the flagship products of the NPCI. It is a global card payment network that is widely accepted at various nodes like ATMs, e-commerce portals, POS machines and more. Over 1,000 banks in India issue RuPay cards today, and this selection includes credit, debit, prepaid and government cards. This innovative system played a tremendous role in the penetration of digital solutions in the tier 2 and tier 3 cities in India.
Aadhaar Payment Bridge System (APBS)
The Aadhaar Payment Bridge System helps the government and governmental agencies make direct transfers to the beneficiaries of the many schemes sponsored by the central and state governments. It uses the beneficiary’s Aadhaar number as the primary key.
National Financial Switch (NFS)
Easily the leading network of ATMs in the country, the National Financial Switch consists of a network of shared ATMs. The biggest advantage of this network is that it enables easy cash withdrawal and card-to-card funds transfers for people in the country. The NFS also makes interoperable cash deposit transactions, mobile bank registration and Aadhaar number seeding possible.
The Bharat Bill Payment System (BBPS) is a one-stop solution for all your regular payments. You can pay your electricity, gas, DTH, insurance, telecom, water and even your FASTag dues online via the BBPS route. There are over 200 billers in the system in various categories.
A boost in digital payments
With demonetization being announced in 2016, the digital payment system in India was further strengthened as more people began to turn to these channels for their everyday transactions. Furthermore, the outbreak of the COVID-19 pandemic made it increasingly necessary to initiate contactless payments.
The use of NFC technology in POS terminals made it easier for retail consumers to pay for their purchases in a contactless manner. But in view of the lockdowns enforced over the past years, the need for more robust contactless solutions made Unified Payments Interface (UPI) increasingly popular.
Want to know more about UPI? Chances are, you already know the fundamentals of this digital payment option because you already use it. But if you want a closer look at the revolution that UPI is, we suggest you head to the next chapter for the details.
A quick recap
- The adoption of digital payments in India began even before the internet was born, with the use of credit and debit cards.
- BillDesk was founded in 2000, on the cusp of the new decade. It was the first payment aggregator in the country, and it made digital payments easier for e-commerce customers.
- In 2005, digital transactions like fund transfers got easier, thanks to the introduction of National Electronic Funds Transfer (NEFT).
- The National Payments Corporation of India (NPCI) was established in 2008. And it rolled out several other digital payment options to strengthen the payments system in India, like RuPay, APBS, BBPS and more.
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