Digital payments double in 3 years, cash transactions fall: RBI report

The study highlights that the share of digital payments more than doubled between 2021 and 2024, with UPI playing a key role in this transformation, particularly for small-value purchases

As of March 2024, cash still accounts for 60 per cent of consumer expenditure. But its share is rapidly declining, accelerated by the post-Covid shift to digital payments, according to a study by a Reserve Bank of India (RBI) economist reported by The Economic Times. The share of digital payments more than doubled from 14-19 per cent in March 2021 to 40-48 per cent in March 2024, the study revealed.

“A cash usage indicator (CUI) taking into account both physical and digital modes of payments indicates that cash usage remains significant but has been declining during the period under study,” said Pradip Bhuyan from the Reserve Bank’s department of currency management. His paper, Cash Usage Indicator for India, examined consumer spending trends from 2011-12 to 2023-24.

According to Bhuyan, the CUI, which reflects the share of cash in private final consumption expenditure, showed a drop from 81-86 per cent in January-March 2021 to 52-60 per cent by January-March 2024. “CUI is a quarterly indicator and can facilitate currency management,” he added. Bhuyan also clarified that the views expressed in the paper are his own and do not necessarily reflect the central bank’s stance.

The report mentioned that the United Payments Interface (UPI), launched commercially during the 2016 demonetisation of Rs 500 and Rs 1000 notes, saw significant growth only after the Covid-19-induced lockdown in 2020. While UPI's average transaction size was Rs 3,872 in 2016-17, it dropped to Rs 1,525 in 2023-24, indicating its growing use for small-value purchases.

The study further noted that cash is still preferred for low-value transactions. However, the currency with the public (CWP) to Gross Domestic Product (GDP) ratio, which peaked at 13.9 per cent in 2020-21 post-demonetisation, fell to 11.5 per cent in 2023-24. Meanwhile, UPI’s share in person-to-merchant (P2M) transactions grew significantly from 33 per cent in value terms in 2020-21 to 69 per cent in 2023-24. In volume terms, UPI’s share rose from 51 per cent to 87 per cent over the same period.

Bhuyan concluded that the decrease in UPI’s average transaction size, the rising share of P2M transactions, and the moderation in the CWP-to-GDP ratio in 2023-24 indicate a clear substitution of cash with UPI for smaller-value transactions.