Payments Ecosystem in India

Introduction:

India’s digital payment ecosystem is being powered by multiple platforms—UPI, Aadhaar Enabled Payment System (AePS), Payment Aggregators (PAs), and Prepaid Payment Instruments (PPIs)—each serving distinct use cases but collectively advancing financial inclusion, especially in rural and semi-urban India.

Aadhaar Enabled Payment System (AePS)

• What is AePS?
  • Launched in 2011, AePS allows interoperable banking transactions at micro-ATMs using Aadhaar and biometric authentication.
  • Operated by NPCI, it enables cash withdrawals, deposits, fund transfers, and balance enquiries without a card or phone.
• Scale of AePS (May 2025):
  • Focus area: rural and semi-urban regions.
• Key Issue: Fraud Risk
  • Between Jan 2019–May 2023: ₹585.79 crore lost to fraud out of ₹10,247 crore AePS transactions.
  • RBI’s June 2025 guidelines aim to:
    • Strengthen KYC norms for ATOs (AePS Touchpoint Operators).
    • Mandate periodic monitoring of transaction patterns.
    • Classify ATOs based on risk profile, type (mobile/static), and transaction velocity.
• Corporate-BCs Left Out:
  • RBI guidelines do not address corporate business correspondents, the intermediaries connecting banks to ATOs.

UPI: India’s Flagship Digital Payments Channel

• Overview:
  • Launched in 2016, UPI enables real-time person-to-person and merchant transactions using mobile apps.
  • Users can link multiple bank accounts to one UPI-enabled app.
• Scale of UPI (May 2025):
  • 18.68 billion transactions worth ₹25.14 trillion.
  • Backbone for urban and semi-urban digital commerce.

Challenges in AePS vs. BC Model

• Public Sector Banks (PSBs) still prefer BCs over ATOs, capping AePS transactions to manage cost.
• For example:
  • ATM interchange fee: ₹19 (flat).
• This creates access barriers for customers and defeats AePS’s convenience potential.
• Cash Deposit Interoperability Lag:
  • Only a few banks support interoperable cash deposits via AePS.
  • RBI may explore third-party deposit enablement, allowing Person A to deposit cash into Person B’s account.

Payment Aggregators (PAs)

• RBI has granted in-principle approval to 32 physical PAs.
• Recommendation:
  • Allow QR-code-based cash withdrawal to transform PAs into micro-ATMs.

Prepaid Payment Instruments (PPIs)

• Operators include: Amazon Pay, MobiKwik, Spice Money, Pine Labs, and some NBFCs/banks.
• BBPS Restrictions:
  • Recent RBI guidelines disallow loan EMI payments via wallets funded by credit cards.
  • Issue: Since money is fungible, enforcing source tracking is complex.
  • Recommendation:
    • Allow wallet-based loan repayment (including current dues) to reduce collection costs, especially in microfinance.

Way Forward

India’s digital payment landscape is undergoing rapid transformation:

• UPI has made India a global leader in real-time retail payments.
• AePS ensures last-mile financial access in the rural economy.
• Payment Aggregators and PPIs are filling service gaps in merchant payments and stored value tools.

Yet, to achieve holistic financial inclusion, the RBI must address gaps in:

• Fraud prevention (especially for AePS and ATOs),
• Regulatory parity (for corporate BCs and PPIs),
• Interoperability and transaction caps (especially for PSBs and AePS).

BS