RBI’s plan to initiate UPI on feature phones to wean retail payments away from cash is good
Unified Payments Interface (UPI) has been at the forefront of India’s digital payments revolution, making faster inroads into retail payments than any other online mode. The mobility restrictions brought on by Covid only heightened its appeal with monthly transactions value clocked by UPI vaulting from ₹1.8-lakh crore in November 2019 to ₹7.6-lakh crore by November 2021. While credit and debit card payments flat-lined at ₹13-lakh crore between FY19 and FY21 and use of IMPS grew from ₹2-lakh crore to ₹3.6-lakh crore, UPI payments have jumped from ₹8.7-lakh crore to ₹41-lakh crore. But with cash use still at a high and UPI commanding less than a 10 per cent share of digital retail payments, there’s still considerable headroom for growth. This makes the Reserve Bank of India’s resolve, expressed in its recent monetary policy review, for renewed efforts to expand UPI’s footprint, quite welcome.
To ensure that digital transactions are both affordable to users and remunerative to service providers, RBI plans to issue a discussion paper specifying transaction charges across digital modes. One hopes that it doesn’t see reason to disturb its zero Merchant Discount Rate policy which today renders UPI free of cost to users. If Covid has propelled digital payments, it has also ironically led to a return to cash transactions in the economy, which after an inordinate spike to 14.5 per cent of the GDP in FY21, are only now moderating. The time is opportune for RBI to redouble efforts to wean the economy away from cash to digital modes.