The COVID-19 pandemic has introduced new systems of interacting in the socioeconomic world which focus on digital methods to deliver products and services. This has additionally led to severe innovations in the digital finance space. In the pursuit of following appropriate social distancing protocols amidst repeated waves of infections and the resultant mobility restrictions, the country has witnessed an increasing adoption of several forms of cashless transaction methods, particularly Unified Payments Interface (UPI) or QR code-based merchant payments, across businesses and consumers. This has also led to a boost in real-time payments in the country. 

The goal to make India a cashless economy is not new. The demonetisation drive of 2016 was primarily aimed at initiating the transition of the country to a cashless economy. However, owing to the lack of alternatives in cashless payment methods, individuals graduated towards app-based virtual wallets. This prompted a need for an intervention and in December 2016, the government launched the Unified Payments Interface (UPI), linking bank accounts to individuals’ smartphones directly for digital transactions. This platform, since then, have performed fairly well. In the first year, UPI registered an over 1000 per cent growth, albeit over a small base, and has grown in triple digits since. India accounted for the highest volume of real-time payments among businesses around the world, with over 40 per cent of all such payments made through 2021 originating in the country. It is thus has been best known to provide P2P and P2M transactions in India with ease, safety, and security and has successfully positioned itself as the world’s most successful real-time payments system. Furthermore, the government has also utilised the platform for direct benefit transfers to beneficiaries, including making payments to farmers directly in their bank accounts.

The country provides an appropriate template for mobile wallet integration with underlying real-time payment systems. Recounting the success of the digital payment mechanism, the Prime Minister said India’s share in real time digital payments world over is more than 40 per cent.

A recent report by NPCI reveals that the digital payments platform Unified Payments Interface (UPI) recorded 5.58 billion transactions in April 2022 alone, setting a new record for the payments platform in India since its inception in 2016. In April 2021, UPI processed only 2.64 billion transactions worth INR 4.93 trillion. To recall, UPI achieved its first milestone by recording over 1 billion transactions back in 2019. The report further mentioned that real-time payments in India are expected to grow at a compound annual growth rate of 33.5 per cent through 2026. Additionally, the report highlighted the value addition of real-time payments to India’s economic output. This stood at $ 16.4 billion or 0.56 per cent of the nation’s gross domestic product in 2021. By 2026, this contribution is tipped to rise to $ 45.9 billion – or 1.12 per cent of the nation’s GDP.

Major reasons driving this transition towards UPI and its scope of growth in India include cashback initiatives from companies like GooglePay, Paytm, and even WhatsApp. The government is also piloting initiatives like 123pay aiming to include feature phones in digital transaction models. And UPI Lite to further enhance the digital payments sector in the country. Furthermore, the Reserve Bank of India (RBI) has launched interoperable cardless ATM withdrawals utilising UPI platforms. This will enable the customers to benefit from transactions while safeguarding them from fraudulent actions. 

The evident increase in the reliance on digital transactions has been instrumental in improving liquidity in financial systems of the country. For instance, workers and employees are paid quickly, allowing them to better plan their finances, businesses have more flexibility and reduce the need for heavy procedural cash flow management, among others. Moving forward, there is immense potential in this area for growth. Focussed efforts being laid on enhancing customer options for payment, enhancing security, undertaking innovations in technology like distributed ledger technology (DLT) and emerging tech like internet of things (IoT) can contribute extensively to further the scope of digital payments and smoothen the transition to a cashless economy. Moreover, the industry can enhance customer experience by focussing particularly on offline payments through UPI. Several regions in the country are still in the process of achieving continuous accessible internet. This would significantly contribute in countrywide acceptance and utilisation of the UPI, eventually leading to a less-cash and digitally empowered economy. 

This is co-authored by Devika Chawla and Srijata Deb.