Digital payments: Lifting cap on ticket size of transactions will speed up sector growth

A pronounced shift in consumer choice favouring digital money is slowly, but steadily, playing out in the retail financial payment space across the spectrum in the country. Though there is no official statistics available yet to make an apple-to-apple comparison between the size of cash and cashless economy, a recent research note has pegged the share of cash transactions in the total consumer spending at 68 percent in 2017, down 10 percent from 78 percent in 2015.

This revealing piece of information reassures the fact of growing consumer preference to go cashless which is fast becoming the new norm in the payment space. And the trend seems to be accelerating ever since the Reserve Bank of India (RBI) that regulates the payment industry allowed interoperability among payment service providers sometime ago.

Representational image. AP

The trust in digital payment modes is likely to gain traction as more consumers are poised to switch to non-cash payment methods after the interoperability has kicked in. This augers well for the fledgling payment industry, which has been smarting from several regulation-induced disruptions of late.

Data from the National Payments Corporation of India (NPCI) shows that on a sequential basis, the total volume of financial transaction done through digital platforms has increased by 448.57 million or 13.42 percent between April-June 2018 and July-September 2018, though there was a slide in the value of payments during the period.

The aggregate volume of retail financial transaction using digital payments modes has gone up from 3,341 million to 3,789.86 million between the first quarter and second quarter of the current financial year. However, in terms of value, there has been an absolute decline of Rs 65,760 crore, to Rs 31,93,900 core from Rs 32,59,690 crore during the period which translates into a slump of a shade over 2 percent.

However, the three major modes of digital transactions — Unified Payments Interface (UPI), instant payment mode called Immediate Payment Service (IMPS) and mobile application styled Bharat Interface for Money (BHIM) – all have made steady headway during the period.

While the number of transaction done through the IMPS has increased by 50.09 million or 14.45 percent to 396.70 million in the second quarter of the current fiscal from 346.61 million a quarter ago, the value of transactions has grown by Rs 42,714 crore or 13.19 percent, up from Rs 3,23,827 crore to Rs 3,66,541 crore between the two quarters.

Similarly, the volume of UPI transactions has swelled by 327.61 million or 52.33 percent, the value of transactions logged a growth of Rs 64,744 crore or 64 percent approximately during the period. In absolute terms, the growth in volume between the two quarters was from 625.93 million to 953.54 million, the aggregate value has spiked from Rs 1,01,141 crore to Rs 1,65,885 crore during that period.

Though the trend in the growth in mobile app BHIM has not mirrored the growth in the use of smartphones in the country, it nevertheless shows signs of gathering steam going by the numbers. The volume of transaction through BHIM app has increased by 14.26 million or 6.15 percent and the rise in terms of value was to the tune of 21.48 percent or Rs 3,649 crore.

While the volume of transaction through BHIM has increased from 43.10 million to 49.25 million, the value of transactions increased to Rs 20,631 crore from Rs 16,982 crore respectively.

At the micro level, a host of factors such as the launch of new services through the entry of new and niche players offering specialised services to cashback schemes seem to have helped digital payments to grow at a faster pace during the current financial year.

At the macro level, the evolving regulatory eco-system post demonetisation and the coming of age of systemically important infrastructure backbone giving more bandwidth and plugging security loopholes and above all zero transaction fees have aided the growth of the digital payment industry.

It may be in order to point out here that the increase in adoption of digital instruments has been aided by the increase in merchant outlets and Point of Sale (PoS) instruments as well as the ever-increasing bandwidth of UPI network fuelled the growth of the industry.

It may be safe to surmise that digital payment modes are gaining the trust of ordinary Indians in a big way and at a faster pace.

Once the regulator removes more bumps on the road ahead like raising or lifting the cap on ticket size of transactions — say from Rs 1 lakh to Rs 2 lakh — the payment industry may fly into the future on digital wings.

Writer is founder and MD of The Mobile Wallet