Fintechs are at the forefront of bringing digital payments into the hands of every Indian through micro-lending, real-time settlements and embedded finance.
While the digital economy runs in real time, the systems behind it often fail to keep up. (Source: freepik)
Innovative payment technologies and interfaces have given a rapid boost to the digital payment ecosystem in India in recent years. India’s instant payment system and protocol - United Payments Interface (UPI), alone has processed over 172 billion transactions in 2024, a 46% jump from the previous year. India also has several other payment technologies and interfaces such as FASTag, Bharat BillPay, e-RUPI, Rupay, Aadhaar-enabled payments and Open Credit Enablement Network (OCEN) that are equally popular. However, this momentum that the rapid growth of payment system that has been created, presents both complexities and opportunities that need to be addressed.
Real time payments and real time systems
It is crucial to modernize digital payments since it is a key enabler of India’s real-time digital economy. The payments infrastructure must evolve to be open, intelligent, and future-proof to support a multi-platform ecosystem. This mandates a rehaul of the technology stack right from the data layer and application programming interfaces (APIs) to backend processing and compliance systems.
Modern payments need modern foundations
Fintechs are at the forefront of bringing digital payments into the hands of every Indian through micro-lending, real-time settlements and embedded finance. Innovation in this area is also extending its benefits to the underserved segments of society. However, while the digital economy runs in real time, the systems behind it often fail to keep up.
Meanwhile, dependency on batch processing creates latency, increases risk and limits scalability for traditional core banking platforms. Digital payments can thrive only if the backend infrastructure is robust, fast and intelligent. And it is important to build agile, 24x7 systems, adaptive to rising volumes, new payment models, and evolving customer expectations.
Security by design, and not as an afterthought
Shifting the focus from isolated risk controls to embedded intelligence goes a long way in ensuring data security and privacy. Data security elements such as privacy-by-design, tokenization, and consent-driven frameworks must be built into the early stages of the modernization roadmap and not considered as add-ons.
Policy and regulation upholding the change
This change is being actively supported by India's regulatory bodies. Take the example of RBI launching phase I of the Indian Financial Services (IFS) Cloud in 2025-26. It will enable public sector banks and regulated fintechs to have a safe, legal platform to effectively scale payment services. Not only this, but they will also have more control over localization and data privacy.
To stabilize and expand UPI, the RBI is also collaborating with ecosystem stakeholders. The RBI is laying the groundwork for a contemporary digital financial infrastructure by emphasizing data localization, privacy and control.
AI as the enabler of intelligent modernization
Artificial Intelligence (AI) is rapidly emerging as the biggest catalyst in digital payments modernization. Financial institutions need modular, cloud-native architectures where AI can be embedded at every layer, from detecting fraud and automating compliance to enabling conversational agents. For instance, AI is helping banks move from reactive systems to predictive, intelligent networks.
AI platforms and tools demand a modern IT infrastructure that is cloud-ready, data-rich, and built for speed. However, many financial institutions still run on legacy systems that limit real-time processing and data connectivity. Banking and financial enterprises need to collaborate with technology partners with the expertise to help the enterprises integrate AI tools with their IT infrastructure, enrich data pipelines, and deliver real-time insights with data analytics.
In the years to come, Indian banks, fintechs, regulators, and technology providers will need to work together to build a digital payments ecosystem that is AI-native, resilient and can leverage technology talent to drive the nation’s digital economy.
Hussain Zaidi is the Vice President & Client Unit Leader - BFSI at Kyndryl India.
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