Ruchin Kumar, Vice President – South Asia, Futurex gives us a peek into the complex, but delicate, circuitry of financial payments in the digital age. He shows us where various wires like Unified Payments Interface (UPI), Society for Worldwide Interbank Financial Telecommunication (SWIFT), Central Bank Digital Currency (CBDC), security threats, cash, digital currencies and cryptography connect, intersect and dance together in the future that is emerging now. Excerpts from his interaction with Pratima Harigunani:
What has been the impact of 5G, digital payment interfaces, UPI, and ONDC in India?
5G networks are designed to deliver more bandwidth, less latency, and better wireless connectivity in general. Because mobile payments rely on wireless service, the two fields share a mutually beneficial relationship. Though 5G service is available in many places nationwide, the process of upgrading network infrastructure is ongoing. When enough progress has been made, many expect the number of 5G users to increase by a significant margin.
“UPI has laid the foundation for billions of digital transactions every month and many of these transactions are conducted using mobile apps and QR codes.”
On the payments front in general, India remains a global payment processing hub. The Unified Payments Interface (UPI) standard has laid the foundation for billions of digital transactions to take place every month. Many of these transactions are conducted using mobile apps and QR codes. This massive scale is unique to the Indian market. None of it would be possible without the implementation of the Aadhaar biometric ID system to authenticate individual citizens.
Is this progress reflected on the B2B side as well?
On the level of B2B payments, the Open Network for Digital Commerce (ONDC) very recently implemented B2B payments on its network. This is expected to help enterprises leverage many more advantages that digitalisation can offer. Meanwhile, the fintech sector continues to see tremendous growth and innovation, driving demand for data security solutions that, in addition to being reliable and compliant, are just as agile and innovative as the fintech space.
How do you compare SWIFT and UPI from the payment angle?
While both UPI and the Society for Worldwide Interbank Financial Telecommunication (SWIFT) are large systems designed to facilitate payments, they are very different in several important ways. First, in terms of scope, SWIFT operates in hundreds of countries. It uses dedicated telecommunications infrastructure to allow financial institutions to exchange different types of financial messages, such as payments and securities trading instructions. UPI, on the other hand, is mainly used for peer-to-peer (P2P) payments between individuals and merchants, with further applications in bill payment and e-commerce.
How practical are new models like Blockchain and zero-proof contracts for the payment landscape?
From a cryptographic point of view, Blockchain technology relies on strong encryption to protect the integrity of its records. Zero-knowledge proofs, likewise, involve complex cryptographic operations to prove the validity of data. The cryptographic solutions to secure these models are readily available, but it may be rather early to make a definitive statement regarding their implementation in the payments sector.
Has technology helped to confront issues of penetration, financial literacy, inclusivity etc. in India?
The deployment of the Aadhaar number has streamlined the process of authenticating individual identities, which has paved the way for more and more people to effectively use UPI solutions in their daily lives, whether buying something from a local vendor or making a purchase online. In that sense, and given how many people now use UPI in some way, India’s technology-driven financial initiatives have seemed to expand financial inclusion.
So, what excites you about India’s financial landscape, especially on the CBDC front? Will it make a real impact?
As a digital liability of the central bank, CBDC or Central Bank Digital Currency has intriguing possibilities. In short, it would serve as a centrally-backed encrypted digital currency. Given the volatility of cryptocurrency, this could prove a safe and convenient option for individuals with an interest in anonymous digital currency.
“Aadhaar has streamlined the process of authenticating individual identities, which has paved the way for more people to effectively use UPI.”
A representative of the RBI has stated that CBDC is expected to have the same anonymity as physical cash, which could provide further incentives to these individuals. India has demonstrated the viability of systems like UPI to the rest of the world; it will be interesting to see if the e-rupee unfolds similarly.
And do you think we will continue to use cash after five to eight years? Will the dilemma around convenience, privacy, and regulatory control ever be solved, particularly when a lot of people still prefer cash to cashless?
The digital payment ecosystem is always evolving, with some aspects proving their worth and enduring and many other aspects rapidly changing. As providers of cryptographic solutions, we seek to drive innovation in the industry, creating the solutions we would want to use. As for whether society is heading in a cashless direction or not, that question will be best answered over the coming years.
What about tokenisation, contactless payments, P2P transfers, and digital banking? Also, have we learnt any lessons from digital payments fraud?
If there’s one thing fraud can teach us, it is the importance of having a holistic data security strategy. For example, an organisation may issue digital certificates to authenticate its employee workstations, but they can still be vulnerable if the employees are not trained to be vigilant against social engineering or phishing attempts.
Thankfully, as cybercrime and fraud continue to rise globally, so do the solutions and strategies that help combat it. There have been many advancements in the data security world as of late. Standards have emerged for contactless payments on COTS (CPoC), P2P transfers including those of UPI, and tokenisation, where the “token vaults” of old have been replaced by new “vault less” methods.
So, the world will continue to be dominated by BigFin and BigTech…
India is well known for its explosive fintech industry, where smaller and midsize organisations have found inventive new financial solutions. Several of these organisations have seen their valuations skyrocket, becoming Unicorns. As technology continues to advance, we are likely to see such innovations continue across many sectors of the economy.
Vice President – South Asia, Futurex
By Pratima H