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| Edited By: Kumar Srinivasan |Source: DNA |Updated: Sep 03, 2019, 06:00 AM IST
The ban of Rs 500 and Rs 1,000 currency notes was arguably a major turning point for India's economy. While Prime Minister Narendra Modi's sudden decision to scrap high-currency notes sent the entire nation into a frenzy, the historic event marked the beginning of a new digital era. Post demonetization, India has witnessed a significant increase in the usage of cards and digital wallets for low-value transactions. With growing smartphone ownership and internet usage in the country, non-cash, contactless payments have now become quite the norm across tier-I and tier-II cities. The shift to digital payments has also been fuelled by the unprecedented boom of the Unified Payments Interface (UPI). According to the data provided by the National Payments Corporation of India, which manages the platform, monthly UPI transactions crossed the Rs 1 trillion-mark in December 2018. The figure indicates the widespread adoption of digital payments in India, backed by both home-grown and global companies like Paytm, PhonePe, MobiKwik and Google Pay.
The government has consistently been encouraging digital payments in the country to ensure better digital infrastructure and awareness amongst the country's population, thereby enabling the penetration of mobile/digital wallets along with secure Aadhar-linked payment systems to provide seamless payment processes. The country still offers huge scope for the introduction of digital payments since there is still a section of the population that uses cash as the preferred mode of payment and have limited resources, thus making it difficult for them to convert to e-transactions and adopt digitization.
Industry estimates suggest that a staggering 95% of the adult population in India has little to no access to formal sources of credit. Whereas, the rest struggles to get access to credit when sought on short notice. According to a 2018 World Bank report, India has the second-largest unbanked population, with as many as 191 million Indians living without a bank account. What's even more alarming is that nearly half of the country's bank users have an account that remained inactive in 2017. The statistics show how financial inclusion continues to be a far-fetched dream for India.
India has made significant efforts over the past decade to provide basic financial service facilities to the underserved segment. However, barriers like lack of financial literacy, policy-gaps, irregular incomes, remoteness and high cost of banking services prevent vast sections of the population to participate in the formal financial landscape. This is why digitisation is now being touted as the key to realise financial solution in India. Be it mobile payment apps or digital lending platforms, the shift of emphasis from traditional to digital payments have benefited individuals as well as businesses, including the self-employed, small borrowers and SMEs and MSMEs. The government think tank Niti Aayog in its 'Strategy for New India @75' document also emphasised that digital payments will be instrumental in driving financial inclusion and creating financial opportunities for the poor and unbanked.
Banks are breaking the physical barrier
With technology being a major disruptor, the banking sector in India has undergone a paradigm shift in recent years. Companies are increasingly digitising their operations and processes to provide a seamless banking experience to consumers. Right from creating a bank account to making transactions to applying for loans, digital banking has allowed people to do everything without ever having to step inside a traditional, brick-and-mortar bank. Amidst this transformation, some players are even making the decision to go completely digital. Taiwan's O-Bank, for instance, doesn't have a single physical branch and offers services through its app and website.
Digitisation of baking services can immensely consumers by facilitating cashless transactions. With the ability to make hassle-free transactions at any place and time, users across India can lend, save and invest over their smartphones or computers. This means a person residing in even the remotest corner of the country is given the opportunity to avail banking services.
The rise of e-commerce in India has influenced more people to opt for digital payment services. The main reason for this is the ease of transaction and convenience. While the COD option is also available, it's been observed that more and more Indian shoppers are paying through their digital wallets and credit/debit cards while shopping online.
Several initiatives have been launched by the RBI and the MeitY to promote the acceptance of digital payments, helping India become a predominantly cashless society. These include the launch of UPI-based BHIM app, the promotional scheme of BHIM Aadhaar, cashback scheme for merchants and referral bonus schemes for individuals on BHIM, Digital Financial Inclusion Awareness and Access (Digital Jagriti) programme, and the opening of a free Doordarshan DTH educational channel to create awareness around the digital payment.
Large-scale adoption of digital payment systems can make access to financial services quicker, and more hassle-free and affordable. While the government put in a lot of efforts to mitigate financial exclusion, India still has a long way to go before it achieves the target set by the RBI. In urban centres, the increasing cost for merchants hinders the adoption of digital payments, whereas, in rural India, the limited availability of payments infrastructure is identified as the major challenge to financial inclusion. In this regard, regulatory policies have a pivotal role to play in facilitating the growth of digital payments in India. At the same time, the government should run strategic campaigns and take concrete steps to ensure all sections of the society are enjoying financial security and benefits.
Rising e-transactions |
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| According to National Payments Corporation of India, monthly UPI transactions crossed Rs 1 trillion-mark in December 2018 |
| Digitisation is seen as the key to realise financial solution in India |
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