Migration from cash-based economy to digital is a work in progress: RBI

Still a long road ahead, especially across Tier III-VI) and societal cross-sections (senior citizens, migrant workers), apex bank in booklet on Payment Systems

While a lot has been done in the payments space in the last decade and notwithstanding the fact that demonetisation and the covid-19 pandemic have accelerated the adoption of digital payments in the country, the Reserve Bank of India (RBI) has said that the migration of the country from a predominantly cash based economy to a digital economy is a ‘work in progress’.

From 4.98 billion transactions with a value of Rs 96 trillion handled during FY 2010-11, digital payments have grown to 16.23 billion transactions with a value of Rs 3,435 trillion in the FY 2019-20. This represents a compounded annual growth rate of 12.54 per cent and 43 per cent in terms of volume and value, respectively.

And despite growth in adoption of digital payments across geographies and cross-sections of society, the rate of adoption has been differential because of lack of digital financial awareness and lack of digital financial literacy. “Considering the diversity of users in the payment ecosystem, there is still a long road to be travelled, especially across the geographies (Tier III-VI centres) and societal cross-sections (say senior citizens and migrant workers)”, RBI said in its booklet on Payment Systems in India 2010-2020.

 

Hence, the central bank is of the opinion that there is a need for a targeted approach in digital financial awareness and digital financial literacy so that it caters to the potential areas and probable user segments which then will augment the efforts to attain the desired level of digital payment adoption.

Similarly, among other challenges, the RBI has said while there are lots of options in digital payments space for smartphone users, the same is lacking for non-smartphone users. “There is scope for innovation which will offer digital payment products for the non-smartphone users who though declining, would still number around 50 crore by 2022”, said RBI.

“Providing an option of off-line payments through mobile devices and stored value component on cards is expected to further adoption of digital payments”, it added. While a pilot scheme was rolled out in March 2020, based on experience gained from this, a decision will be taken by the RBI on the roll out of the scheme.

Furthermore, another roadblock in the goal of achieving a predominantly digital economy is the cost associated with digital payments. While cash usage is generally free, the cost of installation of acceptance infrastructure like PoS dissuades certain small merchants to adopt them. “Low cost digital acceptance solutions like QR codes have helped in addressing this gap to a certain extent (there are over 7 crore QR codes deployed across the country), but there is scope for more innovative products and further expansion of QR code deployment”, the RBI said.

 

The RBI has said self-regulation is one of the process by which industry participation in regulatory and supervisory processes can be facilitated. SRO is expected to address concerns beyond the narrow self-interest of the industry, such as to protect customers, participants and other stakeholders in the ecosystem, the central bank.

Furthermore, the RBI has said, a survey will be conducted to understand the digital penetration in the country as this will help to orient policies and operations to ensure that digital footprints reach the remotest area and strata of the country.

The RBI is also exploring the possibility as to whether there is a need for a digital version of fiat currency and in case there is, then how to operationalise it. Among other things, geo-tagging of payment system touch points is essential in order to measure the adoption of digital payments. While the central bank has developed a framework to capture the location and business details of bank branches, ATMs, and business correspondents, it is also exploring the idea of extending a similar framework to capture and maintain information about PoS terminals and other payments system touch points.

RBI examining the need to introduce central bank digital currency

The Reserve Bank of India (RBI) on Monday said it is examining the need to introduce a central bank digital currency (CBDC) in the country. And, in case there is a need to introduce digital version of fiat currency, it is exploring how to operationalise such currencies.

“In India, the regulators and governments have been skeptical about these currencies and are apprehensive about the associated risks. Nevertheless, RBI is exploring the possibility as to whether there is a need for a digital version of fiat currency and in case there is, then how to operationalise it”, the RBI said.

A CBDC is a legal tender and a central bank liability in digital form denominated in a sovereign currency and appearing on the central bank's balance sheet. It is in the form of electronic currency which can be converted or exchanged at par with similarly denominated cash and traditional central bank deposits. -- BS Reporter