Tag: upi

Despite much-debated demonetisation and the massive stigma associated with cash circulation, currency usage in the Indian economy is poised to hit an all-time high. Currency in the hands of the public is now crossing $26 trillion and given the economic contraction is likely to be around 15% of GDP this year – a record high. ATM withdrawals are back up in October / November this year after suffering a decline in the first half of the year. This is happening at the same time as digital payments are taking off. The number of users of Unified Payment Interface or UPI has nearly doubled in a year, with the number of UPI transactions on apps such as Google Pay or Phone Pe nearing 2.2 billion in November 2020, with a total value exceeding Rs 3.3 trillion.

The case for digital payments
It is a case of two extremes. Despite the astonishing growth of digital payments – cash still accounts for around 70% of all consumer transactions in the country. This is despite all the gains made by UPI and digital payment methods. It’s important to understand that the number of people using UPI in India is still around 150 million, while the number of unique credit card holders is only approximately 35 million. This gap looks even starker if you compare to it the total number of debit cardholders which is around 850 million – clearly highlighting that even though many people can use UPI to transact, they do not. Understanding why requires a view into who still spends in cash in India and what are the barriers to digital payment adoption.

Three barriers to going cashless
The very first being the income barrier. Once you get paid your salary in cash, it becomes exceedingly challenging to digitise that cash and transact digitally. Over 75% of the Indian labour force is employed in the informal sector, and more than 100 million micro-loan accounts are serviced in cash every week. For this stratum of society, if they get paid in cash–they will transact in currency. Once the informal sector workers who are migrants start receiving their salaries in their bank accounts, it will change the face of digital India. Digitising payments would also make it much simpler for individuals to calculate and file their income taxes and for governments to make sure they are being paid.
Building on the momentum, fintech companies in India need to develop a digital ecosystem to facilitate greater access to finance to informal and new-to-bank segments. It is time fintech’s launch new apps digitising the informal sector. Many such apps have already been launched which allows people to share access to their cards or UPI, with their tribe members in a secure, digital and controlled manner is such a game-changer. The first time someone uses UPI is likely to be handheld by a friend or family member and likely transacting on their UPI id or card – rather than creating an account of their own. The app will facilitate activities in the digital market for those who rely heavily on cash, individuals who do not get paid into a bank account and even families of international migrants that receive their remittances in cash and hence spend in cash. The second they were the infrastructure barrier. Another large section of society either lives in low connectivity areas or transacts mainly with merchants who are not comfortable accepting digital payments. This goes back to the point of informal labourer. Suppose your local thela guy or your domestic helper is a migrant who is not necessarily licensed to do this job. In that case, he/ she is unlikely to set up a merchant account to receive UPI payments and will continue to rely on cash payments as a way to transact – both upstream (buying his goods) and downstream (accepting from his customers). Apart from the various government policies, factors that enable going cashless will be the penetration of technology, such as smartphones, e-commerce, and internet access adding to the penetration of banking services, such as online banking, mobile banking, cards, and POS devices.

The last barrier in the motivation barrier and includes both consumers and merchants who have no obstacles to use digital tools, but decide not to for reasons associated either with the comfort of using digital tools or other reasons (like tax avoidance). This is where regulatory efforts like requiring PAN for large cash transactions will drive the adoption of digital tools. However, this is also, where for a section of society – especially elders – where community support and training can play a significant role.

The right environment
The real questions are, how do you circumvent these barriers? By making both top-down supply-side efforts, including regulatory push and bottom-up community-driven push to adopt digital payments. Apart from promising regulatory environment, factors that enable going cashless are the penetration of technology in rural India, such as smartphones, e-commerce, and internet access plus the penetration of banking services, such as online banking, mobile banking, cards, and POS devices. This group demands flexibility in terms of price, mobility, and a low entry threshold. The pandemic has given the slow rise of digital currency a gigantic boost. The shift will be disruptive but is a leap in the right direction. To conclude, we believe that the longer the pandemic will last, the more cashless-friendly the societies will become. COVID-19 has changed people’s behaviour, and this change is likely to be permanent.

DISCLAIMER: The views expressed are solely of the author and ETBFSI.com does not necessarily subscribe to it. ETBFSI.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.