Digital payments gaining momentum in India

Girish Linganna
A woman named Subamma, holding her young child, prepares to go to work selling clay pots in Somanahalli Kanakpura Road, a village on the outskirts of Bangalore City. Across the country, millions sell roadside items for a living. However, the old-fashioned practice of trading goods for money is stepping into the digital era.
A QR code and a speaker can be found in front of Subamma’s stall. Through the speaker’s built-in SIM card, her customers can make online payments, and the speaker reads out a payment confirmation message to buyers and sellers, informing them that their payment has been successful.
India is transitioning from a cash-first society to a cashless one through QR codes and sound boxes. The number of people carrying cash has dropped dramatically over the past few years. Subamma lives in the shacks she and her family built on the same road and does not have a bank account. They set up a QR code last year after a family friend suggested it. In order to make this for them, he used his own bank account and an Aadhaar number, a government-issued identification code. With an app, she tracks her money and retrieves cash from him as needed.
“To start with, I found the system slightly problematic,” she says. “But, slowly, I learned to get past the difficulties and it’s now become a far easier and more user-friendly system than dealing in cash.”India’s scan-and-pay system has transformed the way businesses operate in the country. With apps like Paytm and PhonePe, millions of people can use the online system of transaction across the country.
India’s economy had lacked QR codes for years, compared to Singapore’s, South Korea’s and China’s. Since the early-2000s, China has pioneered digital payments and now has an array of super apps, including Alipay and WeChat, that combine social media, ride-sharing and digital payments.
Despite being relatively new to the fintech game, India has significantly expanded its fintech sector since 2016.Almost 40% of the payments are now digital in the once cash-only economy. A recent report by PhonePe and Boston Consulting Group estimates that this amount is close to US$3 trillion, with this figure expected to reach US$10 trillion by 2026.
Small signs and QR-coded sound boxes installed at roadside shops across India now proclaim vendors selling all kinds of items-from cigarettes to bidis to clay utensils. Codes are also found in pop-and-mum stores, eateries, clinics and shopping malls. Nearly 300 million people and 50 million merchants currently use the National Payments Corporation of India (NPCI).
As a result of India’s digital revolution, which seeks to integrate more of its massive population into its formal economy, this online payment system may be its most pronounced example. An example of India’s digital revolution is, perhaps, this online payment system, which aims at integrating more of the country’s massive population into the formal economy.
The Indian population is embracing new technology at an increasingly rapid rate in recent years. The number of smartphone users in the country now exceeds 700 million, according to rating agency ICRA. In India, mobile data rates are among the lowest in the world as a result of fierce competition among telecom providers. It is estimated that Indians consume almost 17 gigabytes of mobile data on an average every month-higher than the 15 gigabytes consumed in North America and 13 gigabytes in China.
The greatest benefit of a digital-payment network is how millions of unbanked people in India have been able to tap into the financial system and make transactions with ease. Moreover, it is transformational for an economy dominated by cash and informality.
Economic growth in India is largely driven by private consumption, and both urban and rural areas are experiencing a boost in tech consumption. A digital payment infrastructure also became more necessary in 2016, when Prime Minister Narendra Modi’s government outlawed large-denomination currency to combat undeclared “black money” and corruption.
The country’s cash to the tune of 86% was demonetized instantaneously. The move had a devastating effect on India’s heavily cash-dependent economy and, particularly, on small businesses. So, walking the digital path became essential for the government, according to observers. With the increased demand for online shopping during the Covid-19 pandemic, it became even more crucial.
Indian officials launched the ‘Digital India’ programme in 2015, hoping to achieve “faceless, paperless and cashless” financial transactions for everyone. Providing citizens with biometric identification numbers was made possible through the Aadhaar initiative launched in 2009. There are now 99% of adults with an Aadhaar number, which allows them to open bank accounts.
With the Unified Payments Interface (UPI) launched in 2016, banks and mobile payment apps can make direct online payments without additional fees. UPI handled more than 8.65 billion transactions worth more than $170 billion in March, according to the NPCI, which oversees the platform. With UPI, citizens can communicate and transact without their data being entrusted to companies like Google or Meta.
The government must make sure that the UPI system does not become dogged by the same problems plaguing China’s vast digital-finance system, experts say. “There are still concerns about how effectively Beijing can regulate its fintech services given their horizontal spread, tendency to gobble up data and the ways in which privacy is compromised, making end consumers vulnerable to risks,” an expert says. “India could have a substantially different experience if strict regulatory frameworks were put in place.”
A cross-border transaction system, called PayNow, was launched by India and Singapore on February 21, enabling low-cost and faster cross-border payments. Amitabh Kant, one of India’s top G20 event coordinators, says that India hopes to promote its digital transformation story globally as it hosts this year’s summit. In general, small-business owners are embracing the digital transformation at the local level.
In an interview with This Week in Asia, cobbler Madiah raved about how the online payment system has transformed his shoe-mending business a few streets away from Subamma’s clay pot stall. According to him, he uses the same app to track his daily transactions, expenses and sales, as well as to transfer money to his family. “More than 90% of my customers make digital payments. Things are much easier now. I used to have to search for loose change and petty cash, but those problems are gone now,” Madiah says. “I also don’t lose substantial amounts on commissions on sending money to my family members in my village,” he adds. (IPA)