Lessons from India's fintech revolution

Twenty years ago, four Reserve Bank of India (RBI) officers went on a study tour to Sweden to experience the Swedish payments system firsthand.

- Pramit Bhattacharya

They were impressed with what they saw at the Bankgirocentralen or BGC AB. BGC AB was set up by the leading banks of that country and had become a one-stop clearinghouse for retail payments and related services. The officers felt that a similar model that combined private initiative with public-spirited innovation might work for India.

This idea found expression in RBI's 2005 vision document on payments. RBI should work jointly with the Indian Banks' Association (IBA) to set up a retail payments platform, the vision document said. Despite resistance from some bankers, the idea gained ground. With leading banks as shareholders and then RBI governor YV Reddy's blessings, the National Payments Corporation of India (NPCI) was set up in December 2008. The rest, as they say, is history.

After beginning operations in 2009, NPCI standardized the protocols for inter-bank fund transfers. In 2010, it launched the Immediate Payment System (IMPS), an instant retail payment service with round-the-clock availability. Prior to IMPS, transfers of funds across bank accounts (through the NEFT and RTGS systems) was processed in batches and at fixed operating hours. Digital banking was limited to high-value transactions.

NPCI has been touted as an indigenous success story, the inspiration is foreign. RBI and NPCI teams deserve full credit for adapting the Swedish model to Indian conditions, and for adding new innovations on top of it. But it is the willingness of RBI's officers to learn from others that helped them launch a path-breaking initiative.