Even before the e-rupee is launched, the digital payments revolution shows mass behavioural change – The Economic Times

Clipped from: https://economictimes.indiatimes.com/opinion/et-commentary/view-even-before-the-e-rupee-is-launched-the-digital-payments-revolution-shows-mass-behavioural-change/articleshow/88243597.cmsSynopsis

The big question then is whether this is the beginning of the end of the era of cash as the dominant means of transaction. While the trajectory is clear, it is still difficult to figure whether the diminishing use of cash is at a tipping point.

Over this week, GoI will initiate action on the proposed legislation – by first obtaining clearance from the Union Cabinet, and later presenting it to Parliament for its approval – to regulate cryptocurrencies and clear the decks for the launch of the e-rupee. The latter is the digital rupee to be rolled out by the Reserve Bank of India (RBI).

While speculation is rife on the form and substance of the new law with respect to cryptocurrencies, the e-rupee, or the Indian version of the central bank digital currency (CBDC), is flying under the radar as it were. Its launch is expected to accelerate the shift away from cash. Regardless, there is a singular message from the proposed law – to regulate undesired forms of digital money and at the same time make the alternatives to cash more attractive.

The big question then is whether this is the beginning of the end of the era of cash as the dominant means of transaction. While the trajectory is clear, it is still difficult to figure whether the diminishing use of cash is at a tipping point. Although, this does look to be the definite end of the road for the leather wallet in its existing avatar. Something that also puts the spotlight on the ongoing revolution in digital payments.

Personally, I have traded my bulky wallet for a small diary-sized leather case after credit cards replaced cash in my life several years ago. The ease of use was no doubt the primary incentive to undertake the shift. Yet, the lure of loyalty points that could be cashed was another hook. This rejig in the composition of my wallet continued with the introduction of the digital locker -which is now the repository of our driving accessories, including the registration certificate and the driving licence. As a result, my constant pocket companion has progressively grown smaller in size, though inversely proportional to the screen of every trade-up of the mobile phone.

However, the structural shift came about only after the big push for friction-free digital money following the fateful introduction of demonetisation of high-value currencies in November 2016. It was the moment when the Unified Payments Interface (UPI) promoted by the National Payments Corporation of India (NPCI) got wings.

UPI and About
In a quick recap, UPI is based on the so-called India Stack and the key to its success. It has four technology stacks. One, which permits digital access and, therefore, KYC (know your customer) verification using Aadhaar. It eliminates the mandatory physical presence of an individual.

Second, the digital records ensured a paperless environment. In turn this enabled portability of the individual’s digital data. Third, it allowed for inter-operability of payments between bank accounts and wallets. In other words, it created a cashless environment. Fourth, it allowed entities like digital wallets to access an individual’s data only through consent.

Essentially what this tech stack has done is to unbundle the cumbersome business of payments. It allowed for verified consent to be vested with third-party operators of digital wallets, which all but eliminated friction in online payments by enabling one-click pay, and more importantly made the process transparent. This process also solved for trust – something that is central to promoting a secure, real-time digital payments system.

Covid Booster Dose
And the results are apparent.

Initially UPI did not find currency. After demonetisation, however, the situation improved. But the real big leap came about after the Covid-19 pandemic forced social distancing and a shutdown of the economy. As people shifted their purchases online, the spurt in digital payments followed.

Latest data reveal that both in terms of volume of transactions and its value, the growth in UPI is just under 100%. In November, the number of transactions was 4,186.48 million valued at ₹7.68 trillion, compared to 2,210.23 million and ₹3.91 trillion, respectively in the same month last year.

In fact, UPI is just shy of logging a record $1 trillion worth of transactions in this calendar year. At the end of November, the cumulative value of UPI transactions aggregated ₹63.20 trillion. Unless December witnesses a massive surge, the cumulative transactions for the calendar year will just miss hitting the target of ₹73.81 trillion (the average dollar-rupee exchange rate).

The rapid rise in the use of UPI is not only popularising digital money, but it is also putting the conventional credit cards under pressure. In any case, there are only about 60 million credit users in India while each of the top three digital wallets report 100 million-plus users. In April 2016, only 21 banks had opted for UPI while in November, this number had surged manifold to 274. If, indeed, plans for the e-rupee go through then the option can be, if regulations permit, be loaded on the UPI enabled wallets of 200 million people.

The subtext of this makeover is the incredible behavioural change that has been effected. From only cash, the economy has evolved to using a mix of cash and digital money. The trajectory of change is clear.

And oh yes, I forgot. Now the mobile phone is poised to replace my wallet.

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