Payments Infrastructure Development Fund (PIDF) scheme

The Payments Infrastructure Development Fund (PIDF) scheme was introduced by the Reserve Bank of India (RBI) to encourage the deployment of Point of Sale (PoS) infrastructure across Tier-3 to Tier-6 centers (cities and towns) in the country. The primary goal was to enhance the acceptance infrastructure for digital payments. Read here to learn more.

RBI has extended the Payments Infrastructure Development Fund (PIDF) scheme by another two years till December 31, 2025. It will now include beneficiaries of the PM Vishwakarma scheme.

Beneficiaries of the PM SVANidhi Scheme in Tier-1 and 2 centres were later included in August 2021. As of August 2023, over 2.66 crore new touch-points have been deployed under the Scheme.

Payments Infrastructure Development Fund (PIDF) scheme

The PIDF Scheme was operationalized in January 2021 for three years to incentivize the deployment of payment acceptance infrastructure such as physical Point of Sale (PoS), Quick Response (QR) codes in tier-3 to tier-6 centers, the north-eastern states and Union Territories of Jammu & Kashmir and Ladakh.

Objective:

The primary objective of PIDF was to increase the acceptance infrastructure for card and digital payments in smaller towns and rural areas. By incentivizing the deployment of PoS devices, the scheme aimed to promote digital transactions and financial inclusion.

Implementation:

The scheme was implemented by the RBI, and the funds were intended to be utilized to subsidize the cost of physical and/or digital acceptance infrastructure in areas that had lower penetration of such facilities.

Eligibility Criteria:

Eligible entities for availing benefits under the PIDF scheme included:

• Banks.
• Non-Banking Financial Companies (NBFCs).
• Urban Cooperative Banks (UCBs).
• Payments Banks.
• Local Area Banks (LABs).

Features of the PIDF scheme

Incentives:

Under the PIDF scheme, financial incentives were provided to eligible entities to deploy PoS infrastructure in specified regions. The incentives were aimed at covering a portion of the capital and operational expenses associated with setting up acceptance infrastructure.

Focus on Smaller Centers:

The scheme specifically targeted Tier-3 to Tier-6 centers, which include smaller towns and rural areas. This focus on the underserved regions was in line with the broader financial inclusion goals of the government and regulatory authorities.

Boosting Digital Payments:

By enhancing the acceptance infrastructure, the PIDF scheme aimed to contribute to the growth of digital payments. Increased accessibility to digital payment methods is considered essential for reducing reliance on cash transactions.

Funding Allocation:

Funds for the PIDF scheme were allocated by the RBI. The scheme represented a collaborative effort between the central bank and various financial institutions to address the infrastructure gaps in payment acceptance.

Periodic Reviews and Monitoring:

The implementation and impact of the PIDF scheme were subject to periodic reviews and monitoring by the RBI. This ensured that the objectives were being met, and adjustments could be made based on the evolving needs of the payment’s ecosystem.

Integration with Government Initiatives:

The PIDF scheme was aligned with broader government initiatives, including the push towards a less-cash economy and the promotion of digital financial services.

Government initiatives for digital payments

• Aadhar Enabled Payment System allows individuals to conduct financial transactions on a Micro-ATM by furnishing their Aadhaar number.
• The Aadhar Payment Bridge System allows ease in bulk and recurring Government benefits and subsidy payments.
• Unified Payments Interface was introduced as a single platform merging various banking services and features under one umbrella.
• Pradhan Mantri Gramin Digital Saksharta Abhiyan (PMGDISHA) to promote digital literacy in rural India.
• The incentive scheme for the promotion of RuPay Debit cards and low-value BHIM-UPI transactions (P2M) has been initiated by MeitY to give a further boost to digital transactions in the country.
• The Reserve Bank of India has constructed a composite Digital Payments Index (DPI) to capture the extent of digitization of payments across the country.
• DigiVaarta has been launched with the express intention of spreading awareness on DigiDhan, and also to spread the popularity of BHIM’s barcode-based merchant payment mode with merchants and traders at large.

Future Directions

Contactless Payments: The adoption of contactless payments using Near Field Communication (NFC) technology.

Central Bank Digital Currency (CBDC): Exploring the potential introduction of a digital version of the national currency by the Reserve Bank of India.

Challenges

While the digital payment ecosystem in India has witnessed significant growth, it also faces several challenges that need to be addressed to ensure its continued success.

These challenges encompass various aspects, including technological, regulatory, security, and societal factors.

• Fraud and Cyber Threats: With the increased adoption of digital payments, the risk of fraud and cyber threats, such as phishing, malware, and identity theft, has also risen.
• Lack of Cyber Hygiene: Users’ lack of awareness about cybersecurity practices, like secure password management and recognizing phishing attempts, poses a challenge.
• Limited Awareness: A significant portion of the population, especially in rural areas, may have limited awareness and understanding of digital payment methods and the associated technologies.
• Language Barriers: Accessibility and awareness are hindered by language barriers for users who are not comfortable with English or other widely used languages in digital interfaces.
• Network Connectivity: In some regions, inadequate network connectivity and internet access can hinder the seamless functioning of digital payment services.
• Power Outages: Unreliable power supply in certain areas can disrupt digital payment transactions, especially in the case of mobile-based services.
• Dynamic Regulatory Landscape: Frequent changes in regulations and policies may create uncertainties for service providers and users alike.
• Compliance Burden: Stringent compliance requirements and regulatory burdens can impact the ease of doing business for digital payment service providers.
• Fragmentation: Lack of full interoperability between different digital payment platforms and systems can hinder seamless transactions between users on different platforms.
• Unified Standards: The absence of unified standards for digital payments may contribute to interoperability challenges.
• Data Security: Concerns about the security and privacy of personal and financial data may act as a barrier to the adoption of digital payment services.
• Data Localization: Regulatory requirements related to data localization add complexity for global digital payment service providers.
• Device Dependency: Digital payment services often require smartphones and internet access, excluding those who do not own smartphones or have limited access to the internet.
• Financial Inclusion: Ensuring that digital payment solutions are inclusive and accessible to all segments of the population, including those in rural areas, is an ongoing challenge.
• Transaction Failures: Technical glitches, system downtimes, or errors during transactions can erode user confidence.
• Redressal Mechanisms: Efficient mechanisms for grievance redressal in case of failed transactions or disputes are essential to maintain user trust.
• Continuous Innovation: The need for continuous innovation to keep pace with changing consumer preferences and technological advancements can be challenging for service providers.
• Competition and Market Dynamics: Intense competition in the digital payment space requires companies to differentiate their offerings and provide value-added services.

Conclusion

The landscape of the digital payment ecosystem is dynamic, and new challenges and developments may have emerged since my last update. Continuous efforts by regulators, service providers, and other stakeholders are essential to address these challenges and foster a secure, inclusive, and efficient digital payment ecosystem in India.

Related articles:

• Digital infrastructure in India
• E-RUPI
• India Stack
• Digital India Programme
• Fintech in India
• Prepaid Payment Instruments

-Article by Swathi Satish