Mapping India's digital transactions

Last week, India's central bank finally rolled out Unified Payments Interface (UPI) for low-cost feature phones. With this move, the RBI aims to bring at least 400 million people into the fold of the digital ecosystem. Now, people who don't have a smartphone will be able to transfer money using the UPI feature. The new feature is the third iteration of the Unstructured Supplementary Service Data service launched in 2016. 

It is expected that the new feature will onboard more users and help UPI cross the Rs 10-trillion monthly mark. Value of UPI transactions have increased, but volumes have increased faster.

The need for the new service arose because despite transaction volume for digital payments growing, transactions from USSD service were declining. In February, 14 crore rupees worth of transactions were done using the USSD service, way lower than 21 crore rupees value achieved in January 2019. USSD is a message-based service where a person can transact using a feature phone by dialling *99#. 

On the other hand, the growth in immediate payment service or IMPS -- another NPCI payment service -- was faster than national electronic funds transfer or NEFT. IMPS transactions’ growth in value was almost 2.5-times higher compared to NEFT. IMPS transactions averaged a 2.48 per cent increase monthly for the last 12 months, compared to 1.01 per cent for NEFT--indicating a growing acceptance for faster money transfers. 

Transaction volumes grew even faster than the value. 

Let us now see how cards have performed. Credit card usage at online channels was higher. While debit card usage at point-of-sale (PoS) devices increased again, its share of online transactions declined.

In November 2019, every second transaction via credit card was at PoS terminals; the ratio declined to just over one in three transactions. On the other hand, two out of three times debit cards were used at PoS terminals.

Meanwhile, wallets have also made a comeback, with rising transaction volumes. Wallet transactions were consistently above Rs 200 crore between October and December. 

Even though digital usage is growing in absolute terms, a Business Standard analysis shows that digital transactions have declined as a ratio of gross domestic product.

In 2018-19, the ratio was 8.7. It dropped to 8.1 in 2019-20. And in 2021-22, it is expected to fall further to 7.1. A reason for the decline is rising demand for cash. Another significant reason is the absence of big ticket transactions during Covid. So it remains to be seen whether transactions will zoom again, once the economic trajectory improves.