Central Idea

• The digital payments landscape in India has experienced a remarkable transformation in recent years, with the United Payments Interface (UPI) playing a pivotal role in this revolution. With every neighborhood kirana store now equipped with a QR code scanner, the popularity of digital transactions has soared.

Modes of payment and their growth trends

1. UPI (United Payments Interface):
   • Introduction: UPI was introduced in 2016.
   • Growth: Transactions in UPI have grown in value and volume since its introduction.
   • Push factors: Demonetisation in November 2016 and the COVID-19 lockdown in 2020 played a significant role in the widespread adoption of digital payments, contributing to UPI’s popularity.
   • Growth rate: From June 2021 to April 2023, UPI payments grew at an average monthly rate of 6%.
   • Share of total digital retail payments: The share of UPI payments increased from less than 20% in mid-2021 to about 27% in March 2023.
   • Comparison with other modes: UPI’s growth rate outpaced all other modes of payment, including NEFT, IMPS, debit card payments, and prepaid payments.
   • Impact on NEFT: The increasing share of UPI payments came mainly at the cost of NEFT transactions, which experienced a decline of about 10 points (from 64% to less than 54%) over the same period.
   • Real-time payment settlement: UPI’s popularity might be due to its real-time payment settlement system, similar to IMPS, unlike NEFT.
2. NEFT (National Electronic Funds Transfer):
   • Growth rate: NEFT transactions grew at an average monthly rate of 3% from June 2021 to April 2023.
   • Declining share: The share of NEFT transactions in the total value of digital retail payments declined from 64% to less than 54% over the same period, with UPI gaining popularity.
3. IMPS (Immediate Payment Service):
   • Growth rate: IMPS transactions grew at an average monthly rate of 3% from June 2021 to April 2023.
   • Stable share: The share of IMPS transactions remained relatively stable at about 9% in the total value of digital retail payments.
4. Debit card payments and Prepaid payments:
   • Growth rate: Debit card payments and prepaid payments experienced slower growth, with an average monthly rate of 1.5% from June 2021 to April 2023.
   • Combined share: The combined share of these modes of payment did not exceed 2.5% of the overall digital retail transactions.

Analysis: Financial Inclusion

1. Bank Account Penetration:
   • India has made remarkable progress in bank account penetration, with 80% of the population having bank accounts in 2017 and 2021, up from 53% in 2014.
   • However, a concerning issue is the high percentage of inactive accounts, which stands at 38%. This indicates that a significant portion of the population remains excluded from actively utilizing banking services.
2. Gender Gap:
   • There is a substantial gender gap in digital transactions, with only 28% of women conducting any digital transaction in 2021, compared to 41% of men.
   • The difference of 13 points between men and women in digital transactions is higher than many other comparable countries like Vietnam, Brazil, China, and Kenya, signaling a need for targeted measures to empower women in accessing and using digital payment methods.
3. Rural-Urban Divide:
   • The rural-urban gap in digital payments is evident, with only 30% of Indians in rural areas making or receiving any digital payment in 2021, compared to 40% in urban areas.
   • In contrast, countries like Bangladesh and Kenya display less discrepancy between rural and urban digital payment rates, with over 70% of their populations engaged in digital transactions.
4. Overall Digital Transaction Figures:
   • Despite the increasing popularity of UPI, only 35% of the population reported carrying out any digital transaction in 2021, indicating that a considerable proportion of the population is not actively participating in digital payments.
   • India’s figures for digital transactions are lower compared to the average of 57% for all developing countries and the world average of 64%

Way forward

• Promote Digital Literacy: Provide training programs and workshops to enhance digital literacy, focusing on women and vulnerable populations.
• Reduce Gender Disparities: Implement targeted measures to bridge the gender gap in digital transactions, encouraging more women to participate in digital payment ecosystems.
• Enhance Digital Infrastructure: Expand internet connectivity and improve digital infrastructure in remote and rural areas to ensure equitable access to digital payment facilities.
• Encourage Active Usage of Bank Accounts: Develop financial literacy programs to educate people about the benefits of using their bank accounts actively, thereby reducing the prevalence of inactive accounts.
• Enable Business Participation: Encourage businesses, especially small and medium-sized enterprises, to adopt digital payment methods by providing incentives and simplifying the onboarding process.
• Strengthen Security Measures: Enhance cybersecurity protocols and fraud prevention mechanisms to build trust and confidence among users in using digital payment platforms.

Conclusion

• The UPI has undeniably revolutionised India’s digital payments landscape. However, the journey towards achieving Digital India is far from complete. To address the persisting issues, policymakers must devise targeted interventions to ensure that the benefits of digital payments reach all sections of society. Only then can India truly harness the potential of digital payments and attain the goal of a cashless economy.

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