ePaisa Payment Gateway: India's Payment System Explained: Everything You Need to Know

The Indian payments system has grown rapidly in recent years, blending traditional and innovative models to create a unique digital financial ecosystem. Here is the key information you need to know about the payments space in India:

I. Core payments infrastructure

1. UPI (Unified Payment Interface)

• Real-time Interbank Transfer System (RTBTS)
• Average daily transaction volume to exceed 400 million by 2023
• Support QR code scanning/VPA virtual payment address

2. IMPS (Instant Payment Service)

• Inter-bank transfer system operating 24/7
• Single transaction limit of Rs 200,000 (approx. US$ 2400)

3. NEFT/RTGS

• Batch Clearing System (NEFT) and Real-Time Gross Settlement (RTGS)
• Primary channel for enterprise-level transactions

II. Mainstream payment methods

1. Digital Wallet:

   • Paytm: over 300 million users, offers full eco-financial services
   • PhonePe: market share share of ~47% (2023 data)
   • Amazon Pay: Rapid expansion based on e-commerce scenarios

2. Bankcard Network:

   • RuPay (homegrown card organisation) accounts for 65% of debit card issues
   • Visa/Mastercard dominates the credit card space

3. Emerging Trends:

   • CBDC Pilot (Digital Rupee)
   • Bharat BillPay Unified Bill Payment
   • Soundbox Smart Collections Device Popularised

III. Regulatory framework

1. RBI (Reserve Bank of India) Core Regulator
2. NPCI (National Payments Corporation) Operationally Critical Systems
3. Important legislation:
   • PSS Act 2007 (Payment Settlement Scheme Act)
   • PA-DSS (Payment Application Data Security Standard)

IV. Analysis of market characteristics

1. Tier grading is evident:

   • Digital payment penetration in Tier 1 cities 78%
   • Tier2/3 cities are growing at an average annual rate of 35%

2. Cash dependency:

   • Cash transaction share falls from 861 TP3T in 2016 to 451 TP3T in 2023

3. Featured Scene:

   • DBT Direct Benefit Transfers (covering 900 million beneficiaries)
   • AePS Biometric Micro Withdrawal Service

V. Challenges and opportunities
Challenge:

• High cost of KYC compliance
• Inadequate network infrastructure in rural areas
• Cross-border payment efficiency to be improved

Opportunity:

• The rise of ONDC's Open Digital Commerce Network
• Demand for Fintech SaaS solutions surges
• B2B Supply Chain Finance Blue Ocean Market

It is recommended that entrants focus on it:
✓ UPI ecosystem integration opportunities
✓ POS terminals down market gap
✓ CBDC-related innovative application development

India is in the midst of a critical transition from 'mobile first' to 'smart finance', and understanding localised operating rules and tiered market needs is key to success.

In-depth analysis of the Indian payments market (continued)

VI. Cross-border Payments and Internationalisation

India is one of the largest remittance-receiving countries in the world (with remittance inflows of around $125bn in 2023), with strong demand for cross-border payments, but inefficient traditional channels. In recent years, the Indian government and RBI have actively promoted the facilitation of cross-border payments:

1. UPI Internationalisation

   • Already interconnected with Singapore (PayNow), UAE, France, etc.
   • Allow NRIs (Non-Resident Indians) to register for UPI through international mobile phone numbers
   • Targeted to cover Southeast Asia, Middle East and other areas where Indians gather

2. Innovation in cross-border trade settlement

   • RBI launches rupee settlement mechanism (Vostro account system) to circumvent dollar dependence
   • Pilot project: local currency trade settlement with Russia, Sri Lanka and other countries

3. challenge

   • Strict foreign exchange controls (e.g. LRS free remittance scheme limit of $250,000/year)
   • SWIFT alternatives are not yet mature

VII. Analysis of opportunities in niche areas

1. B2B Payments

   • SMEs lagging behind in digitisation, with large gaps in invoice payments, supply chain finance
   • Companies represented: RazorpayX (corporate banking), Khatabook (merchant account management)

2. Embedded Finance (EF)

   • Swiggy/Zomato and other super apps integrate loan/insurance services
   • SaaS+Payment model emerging (e.g. ERP system with built-in payment module)

3. Rural financial inclusion

   • BC (Business Correspondent) agent network covering 600,000 villages
   • Aadhaar Bio-authentication + Low Power Devices Solve 'Last Mile' Problems

VIII. Technology-driven trends

1. AI and Risk Control Upgrade

   • Paytm, other platforms adopt AI anti-fraud system to reduce UPI transaction risk
   • RBI demands 'Tokenisation' to replace credit card plaintext storage

2. blockchain application

   • Private sector piloting of cross-border transfers of stablecoins (e.g. JPM Coin partnership project)
   • CBDC programmability testing (targeted benefit delivery, smart contracts)

3. IoT payments
   Scenario expansion for automated vehicle bill payment (FASTag annual transaction volume exceeds 3 billion), smart meter prepayment, etc.

IX. Policy windsocks

1. Focus in 2024: New regulations that may be introduced by the RBI include -
   ▶ UPI transaction fee tiering system (for some merchant side charges)
   ▶ Digital wallet interoperability (cross-platform interoperability mandatory)
2. Data localisation: All payment data needs to be stored on servers in India
3. "Buy now, pay later" regulation: BNPL may be included in credit licences

X. Practical advice: how to enter the Indian market?

Key findings

1. UPI is still the core entry point, but profit margins are limited and need to be monetised by value-added services;
2. B2B and cross-border payments are the next breaking point;
3. RBI regulation is tightening and the 'licence barrier' will eliminate small and medium players;
4. Difference with the Chinese market: India skipped the POS era and went straight to the "QR code + biometrics" stage.

For more detailed analyses in specific areas (e.g., CBDC progress or a particular vertical track), this can be explored further!