The controversial currency ban of November 2016 had a few stated objectives, and although a cashless society wasn’t the original goal, it is now without a doubt the most positive outcome of Demonetization. When the talk of a cashless economy first came about in 2016, it was met with widespread scepticism. The stark digital divide in a country like ours, was seen to be the biggest stumbling block for this transition. With a significant majority of our population having little to no access to the Internet, or even a bank account for that matter, the dream of a cashless society seemed very distant, almost impossible to reach. However, as a result of several intertwining factors such as the explosive growth of internet penetration throughout the country, coupled with growing smartphone usage, the narrative has taken a swift turn for the better in a matter of a couple of years.
UPI: The Real Game Changer
The biggest contributor in the mobile payments revolution in India was the UPI system, introduced a few months prior to the currency ban. A Unified Payments Interface, or UPI is an immediate system of accepting digital payments that allows individuals/ businesses to transfer funds between bank accounts through a simplified mobile payment platform. It is regulated by the Reserve Bank of India. Essentially, the idea of UPI is that any smartphone owner, who is a customer of a particular bank, can initiate or request a payment from another smartphone holder, having a bank account. It does not require any details other than the mobile number, or a virtual ID. Ever since its inception, the growth of this system has been ground-breaking.
Cashless Economy: Surging Ahead
The mobile payment revolution in India led to a boom in the number of merchants and retailers adopting digital payment methods. In the last 2-3 years alone, retailers in India that accept digital payments have increased from 1.5 million in 2016-17, to over 10 million in 2019. In fact, India is stated to achieve the fastest growth in transaction value with a CAGR of over 20%, surpassing economic giants such as the United States and China.
The annual compounded growth rate (CAGR) of non-cash transactions has increased at a rate of 12.7%. This surge can largely be attributed to the increased adoption of digital payment by emerging Asian economies. In fact, the global digital payment market size is expected to reach a whopping $10.07 trillion by 2026.
The total volume of UPI transactions as of October 2019, was 2.2 billion, showing an overall 200% increase from the second Quarter of the preceding year. UPI began with a mere 21 banks in August 2016. In a short span of three years, it now has managed to get over 140 banks, and still continues to grow at a rapid pace. The big guns of the digital payment world such as Google Pay, Phone Pe and Paytm hold over 90% of the UPI transactions today, with Google Pay taking the lead in terms of volume and amount. There are several upcoming players such as WhatsApp Pay or Amazon Pay, that are now entering the market, fuelling the momentum of growth.
How It All Panned Out
Despite the initial hiccups, customers and merchants alike have adapted well to the mobile payment revolution sweeping across the country. In fact, for smartphone users, mobile payments have now become as commonplace as making calls or texting.
The path for increased digital adoption was paved by the smooth integration of financial services and mobile technology. What has made it possible is the participation and cooperation of all the key stakeholders involved, be it the government, banks, merchants or even investors. India’s success in the digital payment transformation has seen the country emerging as a role model of sorts for other nations.
The journey to a cashless society rides on several conditions, that are deeply rooted within the structure of the economy. The parameters include physical infrastructure like high speed internet and wide mobile network. There were also policy frameworks put in place, along with government initiatives such as UPI, or Aadhaar-linked electronic payments, as well as improved digital infrastructure, all of which enabled mobile payments to take-off. The government had initiated a slew of measures aimed at creating awareness and promoting digital payment among consumers. Literacy programmes and consumer acceptance have also played a big role. Cash discounts have been used as incentives for merchants, e-commerce and customers, encouraging them to make digital transactions while making payments for railway tickets or utilities.
India’s journey towards a cashless economy is certainly on the right track. To keep the momentum going, we need to ensure continued collaboration amongst the key stakeholders involved. The policy initiatives of the government, therefore, must go hand in hand with the technological innovations brought about by the FinTech industry.
Picture Credits: businessworld.in