India’s Central Bank has been digitising the country’s payment process at a 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 as of 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.

Cash is not king; digital cash is

The digitalisation of payment was further stimulated by the country’s launching 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 fund transfers without providing an Indian Financial System Code (IFSC) code or account number.

Users only require a smartphone, an active bank account, an active mobile number that is linked to the bank account, and an internet connection. Consider it a one-stop solution for anyone in India that wishes to do a financial transaction.

Subrata Panda reported that UPI amassed 6.28 billion transactions amounting to US$1.3 billion (Rs 10.62 trillion) in 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 amounting to more than US$1.04 trillion (Rs 84.17 trillion), in FY22 and processed 22.28 billion transactions, amounting to US$505.6 billion (Rs 41.03 trillion), in FY21.

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

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

E-commerce leading the pack

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

The investment banking company predicts that this growth will stabilise to 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 of 20.1 percent by 2023 to become a US$54 million (INR4,412 billion) market by that point.

Nationwide implementation

Government policies are also crucial in rolling out widespread changes, especially with India’s massive population. The DigiDhan Mission, first announced by the Ministry of Electronics and Information Technology during the Union Budget for 2017-18, initially targeted 2,500 crores in digital transactions during the financial year. Although it fell short at 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 plaza on the highway without stopping at the toll 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 contributing to the cause

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

Continuing from the UPI transactions, a majority of transactions via UPI are conducted not by banks but by Fintech companies such as PhonePe, Paytm, and BharatPe, as reported by Iti Mehrotra, Head of Marketing, Kotak Securities. Mehrotra also added 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 emerging fintech innovations are the Buy Now Pay Later (BNPL) model, voice-enabled payments, EMI-based payment options, and quick loan services.

Official languages in India are English and Hindi, but it is home to several hundred languages that are spoken widely. Fintech companies are localising their services, bringing a new level of inclusivity to India’s ethnic diversities. PhonePe is one of them, with their application able to alert 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, being on a similar par with China in terms of size and population, was once called a sleeping giant too.

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

Featured image credit: edited from freepik and Unsplash