ORF in conjunction with the Koan Advisory Group has come out with a report titled ‘Towards a Cyber-Security Roadmap for Digital Payments: Best Practices and Recommendations’ to smoothen and strengthen the digital payments system in India. The report, developed by Sidharth Deb of the Koan Advisory Group, was released on 3 May at ORF during a round-table discussion deliberating issues of friction which hinder the adoption of digital payments in India.

Moderating and initiating the discussion, Mihir Swarup Sharma, Head, Economy and Growth Programme, ORF, pointed out that the importance of the issue in India is unique. Policy responses are required to keep pace with the growth of a space which is seen as a pivotal component of India’s digital/Information and Communications Technologies (ICT) growth story.

Moreover, digital payments is inextricably linked with Demonetisation  decision of the Modi Government which invalidated the then high-value currency notes (INR 500 and 1000 respectively) or more than 86 percent of the total value of cash in circulation at the time. IN this scenario, Sharma said it was decided that a thoughtful discussion could help identify bottlenecks to digital payments adoption, its interplay with transaction security and a potential future pathway which can aid future dispensations in stimulating the adoption of digital payments in the near to mid-term.

The context for the discussion was set by report author Sidharth Deb who highlighted certain key issues in the report — mostly in the context of transaction security, identity verification, convenience of transacting, etc. Rahul Gosain, Director, DigiDhan Mission at the Ministry of Electronics and Information Technology (MeitY) presented his thoughts on reducing friction in digital payments, mapping the progress of the DigiDhan Mission (India’s National Digital Payments Mission), issues faced by the ministry and possible steps to resolve these issues.

The round table was attended by a broad range of stakeholders who participate across the payments and settlement value chain, including banks, card networks and other payment service providers, government experts, economists, lawyers and technologists.

Key themes

The discussion spanned disparate issues hindering financial inclusion across India’s digital payments ecosystem. These included the need for a robust institutional framework, enhanced transaction security, a convenient and secure customer authentication process and an ecosystem that enables recurring payments. Participants raised some merchant and consumer facing issues which were characterised as inhibiting the adoption of digital payments. Mainly, these issues are:

1.  Lack of adequate acceptance infrastructure;

2.  Limited options for digital payments;

3.  Absence of incentives for digital payments;

4.  High failure rates of transactions.

5.  Lack of a grievance redressal mechanism;

6.  Low digital literacy and awareness;

It was also highlighted that, the growth of recurring payments, which is a prominent form of customer transaction (for subscription services such as utilities, insurance, groceries, food delivery etc), has been inhibited by SMS based Two-Factor Authentication (2FA) requirements. In this context, stakeholders also raised an issue around the lack of mode-neutral standing instruction functionality which deters consumers from availing auto-debit features with common payment instruments like debit cards and UPI.