In 1982, the RBI started to look at introducing Magnetic Ink Character Recognition or MICR technology, which allowed a machine to swiftly read and process cheques in a particular format, such as nine digits. The easing of the process of sorting millions of cheques using computers marked the first move towards an electronic payments system in India.
The next step was to build a communications network for banks, which would facilitate the transfer of funds between banks — for their own accounts, those of customers, and for government transactions. This was done through BANKNET, which was owned by the RBI and state-owned banks, and the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system of transmitting and receiving international financial messages.
The push for ATMs came from private banks in the mid-90s who invested more in technology to introduce new products and reach customers in the absence of a branch network. State-owned banks followed as RBI kicked off electronic fund transfers in the mid-90s — initially for institutions at busy hours of the day, and for retail customers at the end of the day.
The securities scam of 1992 too forced changes in the system — the RBI moved from a manual system of settlement of securities at its public debt offices to a delivery versus payment system, or DVP.
RBI moved to promote an Institute for Development and Research in Banking Technology (IDRBT) in Hyderabad — and to create a network using VSATs (Very Small Aperture Terminal) to electronically link banks, a first at a time when connectivity was a major issue.
As the economy grew, electronic transactions surged — and the RBI and banks promoted the National Payments Corporation of India (NPCI) in 2008 as an umbrella organisation for retail payments. From 2 million transactions in 2009, the NPCI now handles 20 million transactions daily — a number that is bound to rise with the launch of the Unified Payments Interface (UPI), a platform for transferring and receiving funds using an App with a virtual identity, and the proposed Bharat Bill Payments System (BBPS), an integrated system for a variety of bill payments. In 2010, the Immediate Payment Service or IMPS was launched, leading to increasingly larger numbers of people transferring funds electronically.
The broader policy aims of moving towards a less-cash economy may have been achieved with electronic payments having outstripped paper-based transactions such as cheques over the last couple of years, and through the working of a world-class payments system.
RBI’s Payments and Settlements System Vision 2018 now aims to ensure that a variety of electronic payments are cost-effective for both users and service providers, and to decrease paper-based clearing instruments.
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Why Does India Want to Move to Cashless Economy?
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