Digital payments FinTech have been the most funded and torch bearer of FinTech revolution in India. Innovations like UPI, biometric payments, e-wallets are a testimony of forward thinking of the RBI and the governments which has led to the payments revolution in India.
Factors such as cut in merchant discount rates, adoption of NFC payments which enables transaction with a tap and UPI 2.0 with features like linking of overdraft, invoice in the inbox and others have led to faster adoption of digital payments by merchants and users.
i) Prepaid Payment Instruments:
- Closed System PPIs: These are PPIs issued by an entity for facilitating the purchase of goods and services from that entity only. No cash withdrawals are permitted. These instruments cannot be used for payment or settlement for third party services. The issuance and operation of such instruments is not classified as a payment system and does not require approval / authorisation from the RBI.
- Semi-closed System PPIs: These are PPIs issued by banks (approved by RBI) and non-banks (authorised by RBI) for purchase of goods and services, including financial services, remittance facilities, etc., for use at a group of clearly identified merchant locations / establishments which have a specific contract with the issuer (or contract through a payment aggregator / payment gateway) to accept the PPIs as payment instruments. These instruments do not also permit cash withdrawal, irrespective of whether they are issued by banks or non-banks.
- Open System PPIs: These are PPIs issued by banks (approved by RBI) for use at any merchant for purchase of goods and services, including financial servic es, remittance facilities, etc. C ash withdrawal at ATMs / Points of Sale ( oS) terminals / Business Correspondents (BCs) is also allowed through these PPIs.
Accordingly, the FinTech landscape consists of semi-closed and open system PPIs only.
ii) Mobile and Digital wallets (Payment Aggregators): Digital Wallets are like a virtual Pre-Paid Card where you can store value the money for usage. It also allows access to link your bank account, Credit card or Debit Card to make transactions in an easy, effortless manner
iii) Payment gateway: Payment gateways are a platform which allows an entity to receive payments on their website. Some start-ups are further integrating their core payment gateway business with a suite of cash management services and other banking services to help their small and medium enterprise (SME) customers.
iv) Payments Bank: Payments banks is an Indian new model of banks. These banks can accept a restricted deposit but cannot issue loans or credit cards. Payments bank provide online and mobile banking.
v) Innovative and proximity payment solutions providers: These payment platforms are enabling payments through sound waves, scanning, tapping like NFC payments, Tap payments on credit and debit cards, etc. This allows for contactless payments services.
vi) Peer to Peer (P2P): Enables direct transfer of funds between two people without having to store money in a digital wallet thereby enabling quicker transactions