India’s central bank is spurring a digital payments boom

by James · November 14, 2022

India’s central bank has digitized the country’s payment process at rapid speed. The Digital Payments Index (DPI), a metric used by the Reserve Bank of India (RBI) to determine the growth of digital payments across the country rose to 349.30 in March 2022, compared to 304.06 in September 2021.

The index stood at 153.47 in March 2019 and 173.49 in September 2019, demonstrating aggressive growth in just two years.

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Cash is not king; digital cash is

The digitization of payments was further stimulated by the country’s launch of the Unified Payments Interface (UPI). This payment system allows users to link more than one bank account in a single smartphone app and make money transfers without entering an Indian Financial System Code (IFSC) code or account number.

Users only need a smartphone, an active bank account, an active mobile number linked to the bank account and an internet connection. Consider it a one-stop solution for anyone in India who wants to make a financial transaction.

Subrata Panda reported it UPI aggregated 6.28 billion transactions amounting to USD 1.3 billion (Rs 10.62 trillion) by July 2022, a record high for India’s flagship digital payments platform since its inception in 2016. He also reported that UPI processed more than 46 billion transactions of more than 1.04 trillion USD (Rs. 84.17 trillion), in FY22 and processed 22.28 billion transactions, amounting to USD 51 million (Rs. 41.03 trillion), in FY21.

Prime Minister Narendra Modi

Prime Minister Narendra Modi praised UPI and the country’s fintech sector for helping the country lead the world in digital payments.

“Today, we have many success stories to show the world – UPI-BHIM, our digital payments, our compelling position in the fintech domain. Today, in the world, 40 percent of real-time digital financial transactions happen in my country. India has shown innovation prowess to the world, Modi said at the Red Fort during India’s Independence Day.

E-commerce leads the pack

Contribution to the acceleration of digital payments in the seventh largest country and second most populous in the world can be traced to the e-commerce industry, among other factors. JP Morgan reported in its 2020 E-commerce Payment Trends Report: India that the e-commerce market in India has experienced explosive growth since 2017, jumping from a total value of $38.5 billion to $61.1 billion in 2019.

The investment banking company predicts that this growth will stabilize at a compound annual growth rate (CAGR) of 12.1 percent by 2023 and singles out mobile commerce to outperform other e-commerce, growing at a compound annual growth rate (CAGR) of 20.1 percent by 2023 for becoming a USD 54 million (INR 4.412 billion) market at that time.

Nationwide implementation

Government policies are also critical to rolling out sweeping changes, especially with India’s huge population. The DigiDhan mission, first announced by the Ministry of Electronics and Information Technology during the 2017-18 Union Budget, initially targeted Rs 2,500 crores in digital transactions during the financial year. Although it fell short by just 2,071 crores (denoting ten million or 100 lakh in the Indian numbering system), 2018 and 2021 saw the figure rise to 5,554 crores by the end of 2021.

The ministry also implemented electronic payment at National Electronic Toll Collection (NETC) enabled toll booths on the highway without stopping at tolls using RFID technology. The number of transactions on NETC grew more than double, from 11,294 crores in FY19-20 to 22,762 crores in FY20-21.

Fintech innovations that contribute to the cause

With a statement by Modi recently released during the Global Fintech Fest 2022, emphasizing the importance of the fintech industry in India, the country has become a bedrock for several fintechs and startups as an investment hub.

Continuing from the UPI transactions, a majority of the transactions via UPI are not done by banks but by Fintech companies like PhonePe, Paytm and BharatPe, which reported by Iti Mehrotra, Chief Marketing Officer, Kotak Securities. Mehrotra also added that over 67 percent of India’s 2,100+ fintech companies had been launched in the last five years, illustrating fintech’s meteoric rise and tremendous growth in recent times. Among the new fintech innovations are the Buy Now Pay Later (BNPL) model, voice-activated payments, EMI-based payment options and quick loan services.

Official languages in India are English and Hindi, but it is home to hundreds of widely spoken languages. Fintech companies are localizing their services, bringing a new level of inclusiveness to India’s ethnic diversity. PhonePe is one of them, with their application that can notify payments in over nine Indian languages. Paytm and Khatabook also follow suit, offering ten and thirteen languages respectively.

Another sleeping giant?

The government has a flagship programme, Digital India, with a vision to transform the country into a “faceless, paperless, cashless”, digitally empowered society and knowledge economy.

With China’s economic growth in recent years, India, which was at par with China in terms of size and population, was once also called a sleeping giant.

Its economic potential rivals that of any country, and promoting cashless transactions while converting India to a less cash society is a step in the right direction.

Featured image credit: edited from freepik and Unsplash