Intro to Digital Payment Systems: Why They Matter in Digital Public Infrastructure
Digital Payment Systems: The Second Backbone of Digital Public Infrastructure (DPI)
Recently, we discussed one of the three backbones of Digital Public Infrastructure (DPI)—Digital Identity Systems. We explored how Digital Identity Systems are fundamental to the entire DPI framework, serving as its foundation. If you haven’t read that discussion yet, I encourage you to do so, as it will help you better understand the overall concept of DPI. Now, as we move on to the second backbone of DPI, our prior discussions on Digital Identity will provide valuable context for understanding how these components work together.
As I’ve mentioned before, that wasn’t the last time we’ll talk about Digital Identity Systems. These topics are being introduced to establish a basic understanding, but we will revisit them multiple times to gain deeper insights.
Why Are We Discussing DPI?
Before diving into the second backbone of DPI, let me remind you why this discussion matters. Whether we accept it or not, the world is becoming fully digital, and that transition is already underway. Just as in the physical world, where we need strong infrastructures like roads, bridges, and power lines to connect societies, we need the same level of infrastructure in the digital world.
For those of us pursuing what I call digital careers, understanding Digital Public Infrastructure is crucial—not just for staying relevant, but for remaining innovative in this ever-evolving landscape.
Without taking much of your time, let’s now discuss the second backbone of DPI: DIGITAL PAYMENT SYSTEMS. As someone who works in this industry daily, I’m particularly excited about this topic. I hope you are too!
Why Are Digital Payment Systems Important?
Money is one of the most essential forms of exchange in the world—perhaps only communication (information and data) surpasses its significance. Now, imagine trying to build a digital world while ignoring the exchange of money. It wouldn’t work.
That’s why Digital Public Infrastructure cannot be discussed without including Digital Payment Systems.
Beyond just enabling transactions, digital payments offer a range of benefits, including:
1. Economic Growth
This is self-explanatory. The ability to conduct business globally without physically traveling is revolutionary.
In the past, an African entrepreneur wanting to do business with partners in Asia had to travel there.
Now, deals can be negotiated online, payments processed digitally, and shipments arranged remotely.
This not only reduces travel and accommodation costs but also increases efficiency.
It’s not just businesses benefiting from digital payments. Students around the world are enrolling in universities and courses remotely, paying tuition fees online. The more I think about it, the more I wonder: How did the world function before digital payments?
2. Transparency and Security
The impact of digital payments on reducing crime is remarkable.
In the past, people carrying cash on payday were often targets for robberies.
Now, that risk is significantly reduced because salaries are transferred digitally.
Moreover, digital transactions create a traceable record, reducing fraud and corruption. Every payment is logged, auditable, and encrypted, making unauthorized access extremely difficult.
The Current State of Digital Payments
This is not a new concept—digital payment systems are already highly advanced, and their adoption is growing exponentially.
According to Ecommerce Tips’ Digital Payment Statistics (2024):
In 2023, the total value of global digital payment transactions was projected to reach $9.47 trillion.
The market is expected to grow at an annual growth rate (AGR) of 11.79%, reaching $14.79 trillion by 2027.
Read those numbers again! Can you imagine the scale?
I’ve already mentioned that 90% of the world's currency exists in digital form. This highlights the huge progress made in this sector. However, there are still challenges that must be addressed, and that’s where opportunities lie.
Despite the advancements, several key issues remain, and we will spend significant time discussing how to solve them.
Key Challenges in Digital Payments
1. Infrastructure Gaps
Despite the existing infrastructure, remote areas still struggle with limited connectivity.
This is a major barrier to Financial Inclusion—many people are excluded from the digital economy simply because they lack access to reliable internet and payment services.
How do we ensure that financial services reach everyone, regardless of location? That’s one of the key challenges we’ll explore.
2. Cybersecurity & Fraud Risks
While digital payments have reduced certain types of crime, they have also introduced new threats—especially cybercrime.
Key concerns include:
Fraud, particularly social engineering scams.
Hacking and identity theft targeting digital payment platforms.
The question remains: How do we protect money in a digital world while minimizing fraud risks?
3. Regulatory Hurdles
Regulations often struggle to keep up with innovation.
Governments want to ensure security and compliance.
Innovators want flexibility to create new solutions.
Balancing regulation and innovation is one of the most sensitive topics in fintech today. We will discuss some of the future payment technologies currently facing regulatory challenges.
4. User Adoption & Trust
This may seem like a simple issue, but it’s not.
Financial Inclusion also depends on digital literacy—many people still lack the knowledge to use digital payments effectively.
Trust remains a barrier—some people fear digital fraud or simply prefer cash transactions.
We’ll explore ways to increase trust and adoption, ensuring that more people can benefit from digital payments.
Conclusion & Next Steps
I hope you now have a clearer understanding of why Digital Payment Systems are crucial to Digital Public Infrastructure.
To further solidify this knowledge, our next article will explore real-world examples of payment systems in DPI. We’ll analyze India’s UPI (Unified Payments Interface) as a case study.
Don’t miss it!