The Central Bank of India has digitized the country’s payment process at rapid speed. The Digital Payment 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, from 304.06 in September 2021.
The index stood at 153.47 in March 2019 and 173.49 in September 2019, showing aggressive growth in just two years.
Cash is not king; digital money is
The digitization of payment was further boosted by the country’s launch of the Unified Payment Interface (UPI). This payment system allows users to link multiple bank accounts in a single smartphone app and make fund transfers without providing 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 that UPI amassed 6.28 billion transactions amounting to 1.3 billion US dollars (10.62 trillion rupees) in July 2022, a record for India’s flagship digital payment platform since its inception in 2016. He also reported that UPI had processed more than 46 billion transactions, amounting to more than US$1.04 trillion (84.17 trillion), in FY22 and processed 22.28 billion transactions, amounting to $505.6 billion (Rs 41.03 trillion), in FY21.
Prime Minister Narendra Modi has praised UPI and the country’s fintech sector for helping the country become the world leader in digital payments.
“Today we have many success stories to show the world: UPI-BHIM, our digital payments, our compelling position in fintech. Today, globally, 40% of real-time digital financial transactions are taking place in my country. India has shown feats of innovation to the world,” Modi said at Red Fort on India’s Independence Day.
E-commerce leading the pack
The contribution to the acceleration of digital payment in the world’s seventh largest and second most populous country can be attributed to its 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 seen explosive growth since 2017, growing from a total value of US$38.5 billion to US$61.1 billion in 2019.
The investment banking firm expects this growth to stabilize at a compound annual growth rate (CAGR) of 12.1% by 2023 and picks mobile commerce to outperform other e-commerce, growing at a rate of compound annual growth of 20.1% by 2023 to become a US$54 million (INR 4.412 billion) market at that time.
Government policies are also crucial in rolling out large-scale change, especially with India’s massive population. The DigiDhan mission, first announced by the Ministry of Electronics and Information Technology during the Union budget for 2017-2018, initially targeted 2,500 crore of digital transactions in the financial year. Although it only reaches 2,071 crores (equivalent to 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 department has also implemented electronic payment at the toll plaza enabled by the National Electronic Toll Collection (NETC) on the highway without stopping at the toll using RFID technology. The number of transactions on NETC more than doubled from 11,294 crores in FY19-20 to 22,762 crores in FY20-21.
Fintech innovations contribute to the cause
With a statement by Modi recently released during the Global Fintech Fest 2022, highlighting the importance of the fintech industry in India, the country has become a bedrock for more fintechs and startups as an investment hub .
In the continuity of UPI transactions, the majority of transactions via UPI are not carried out by banks but by Fintech companies such as PhonePe, Paytm and BharatPe, such as reported by Iti Mehrotra, Head of Marketing, Kotak Securities. Mehrotra also added that more than 67% of India’s more than 2,100 fintech companies were launched in the past five years, illustrating the meteoric rise and meteoric growth of fintech in recent times. Emerging fintech innovations include the Buy Now Pay Later (BNPL) model, voice-activated payments, EMI-based payment options, and fast loan services.
The official languages in India are English and Hindi, but it is home to several hundred widely spoken languages. Fintech companies are localizing their services, bringing a new level of inclusiveness to India’s ethnic diversities. PhonePe is one of them, with its app capable of alerting payments in more than nine Indian languages. Paytm and Khatabook also follow suit, offering ten and thirteen languages respectively.
Another sleeping giant?
The government has a flagship program, Digital India, with a vision to transform the country into a “faceless, paperless, cashless” society with digital power and a knowledge economy.
With China’s economic growth in recent years, India, being on par with China in terms of size and population, was once referred to as a sleeping giant.
Its economic potential rivals any country, and promoting cashless transactions while converting India into a less liquid society is a step in the right direction.
Featured image credit: edited from freepik and Unsplash