To make digital payments system more efficient in terms of cost saving and risk reduction, the National Payments Corporation of India (NPCI) is planning to develop a blockchain solution.
The payment regulator has proposed to use open source technology framework for this solution, as per its notifications.
NPCI has also floated an Express of Interest (EOI) to allow bidders to propose their capability for developing blockchain for digital payments.
The use of blockchain-centric technology is expected to significantly impact the efficiency of payment operations and reduce the costs and time involved in these transactions.
Blockchain is a digital record of transactions maintained and validated by a network of computers via a cryptographic audit trail. A distributed ledger means that no single authority, like a clearinghouse, needs to verify or execute transactions.
Since blockchain does not discriminate between the transaction sizes, the low cost of transactions will provide an efficient digital payment solution.
NPCI, which is an umbrella organisation for all retail payments, was established with the guidance and support of the Reserve Bank of India and the Indian Banks Association (IBA).
At present, there are about 56 banks as shareholders of NPCI. It encompasses retail payments and settlements system in India. An instant payment system called UPI developed by it has fast gained traction in India.
In the last couple of years, the NPCI has become pivotal to the operations of many retail payment systems in India. In October 2018, NPCI has processed nearly 48 per cent of the retail electronic payment transactions (excluding paper) in volume aggregating to 15 per cent of the value of retail electronic payment transactions.
It aims to become the best payments network in the world using blockchain.
Meanwhile, last year, RBI in its report had said that blockchain potentially has far-reaching implications for the financial sector.
Several state-owned banks in countries like Russia, Saudi Arabia, and the UAE have been working on blockchain-powered financial solutions.