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At the onset of the new year, the Reserve Bank of India (RBI) came up with an innovative Digital Payments Index (DPI) to further boost the adoption of digital payments across the country and to map the true scale of the cashless economy’s penetration in the subcontinent.
March 2018 is the base period of DPI whose score has been set to 100. From March 2021, the DPI score of the current year will be published on RBI’s website on a semi-annual basis. Although RBI announced the plan to launch the DPI as early as February 2020, its framework was launched only by January 1, 2021.
The index is composed of five distinct parameters of different weights, which further include sub-parameters aimed at giving a succinct and realistic picture of the digital payments ecosystem in India. The indices for 2019 and 2020 are 153.47 and 207.84 respectively, exhibiting heavily positive growth in the cashless economy. The five primary parameters of DPI include:
- Payment enablers (25%)
- Payment infrastructure: Demand-side factors (10%)
- Payment infrastructure: Supply-side factors (15%)
- Payment performance (45%)
- Consumer centricity (5%)
They are the various channels (not necessarily a transaction medium) that help us access or make digital payments possible. The usual elements of payment enablers include Internet, Mobile, Bank Account/s, Aadhar, participants, and merchants. It is important to note that with any of these aspects missing, a digital transaction wouldn’t be possible. Payment enablers hold a weightage of 25%.
Payment Infrastructure (PoS)
RBI declared that for Payment Infrastructure, it would be considering the demand as well as supply factors. Both these sides of payment infrastructure hold different weightage. While demand-factors have a weightage of 10%, the supply-side factors hold more importance in the index with a weightage of 15%.
PoS (demand) include debit cards, credit cards, FASTags, Mobile and Internet Banking, Prepaid Payment Instruments. PoS (supply) comprises the channels that cater to the dissemination of all demands or orders from the users’ end. They include ATMs, PoS terminals, QR codes, Bank Branches, Business Correspondents, and Intermediaries.
This is a component used to measure the metrics of payment value, unique users, currency in circulation, and cash withdrawals to get a concise idea of the current statuses of the different payment modes. It has the highest weightage among all the stipulated parameters counting to 45%.
This parameter (5% weightage) considers system downtime, frauds, complaints, and declines from the customers’ end as well as consumer education and awareness.
Demonetization ushered in the phenomenon of digital money in India. By next year, its necessity and practicality had increasingly been felt in daily life. Its acceptance by the common man is evident with the emergence of new terms in the street lexicon such as UPI, QR code, GPay, PayTM, and others.
This is exactly why RBI decided to have a composite Digital Payments Index in the first place. Data on the existing condition of digital payments across the country will allow one to identify and establish an infrastructural liaison with the areas still outside the ambit of cashless transactions.