India is accelerating its use of digital transactions, much like other significant economies already reaping the rewards of being cashless. In particular, the MSME sector in India is benefiting from the trend, which enables them to guarantee transactional convenience and increase their consumer base.
Over the past several years, India has embraced digital payments at a rapid rate. Since 2015–16, transaction volumes have increased at a CAGR of 55,1 per cent, totalling 34.3 billion in 2019–20. Digital payments had a value of Rs. 1,623.05 lakh crore in 2019–20, increasing at a CAGR of 15.2 per cent over that time.
According to a survey from Razorpay, the rise of digital transactions was 338 per cent between 2018 and 2019. The Unified Payments Interface (UPI), which has dominated all transaction types, has been a significant contributor to the expansion of digital payments, according to Harshil Mathur, co-founder and CEO of Razor-Pay. Food and beverage, transportation, and financial services were the industries leading the way in the use of digital payments.
The number of digital payments made using UPI fell from 1,325.7 million in February 2020 to 999.6 million in April 2020. In June 2020, the volume increased once again to 1,336.9 million. The volume decreased to 12.7 million and 10.3 million, respectively, for BBPS and NETC in April 2020 before increasing to 17.6 million and 81.9 million, respectively, in June 2020.
Demonetisation, when 86 per cent of the money in circulation in the Indian economy was eliminated, served as the tipping point for the explosion of digital payment options, including UPI, mobile banking, and wallets. Debit cards’ primary use before demonetization was to make cash withdrawals from ATMs. However, there was an increase in debit card payments after the policy change. According to RBI data, between November 2016 and August 2019, there was an 83 per cent growth in the use of debit cards at the point of sale.
The Indian government has been stepping up its efforts to transition to a cashless society. For instance, it has unveiled a number of low-cost digital payment options, including BHIM UPI, Aadhaar Pay, NEFT, and RTGS. Additionally, it contains a requirement that businesses with annual revenue of more than Rs 50 crore offer their clients low-cost digital payment options. Additionally, merchants that adhere to this clause would not be subject to the Merchant Discount Rate (MDR).
The goal of this provision is to increase Aadhaar- and UPI-based transactions in the organised retail sector. Additionally, RBI has contributed significantly to the economy being cashless. EMV chip and PIN-based cards, making it easier to switch off/on cards, and tokenization is among recent initiatives of the bank to boost client trust in digital payments. By 2025, it is anticipated that digital payments in India would expand thrice to Rs. 7,092 trillion as a result of government regulations and growing company digitalization.
Is India joining the global trends?
Going cashless has become the standard for nations all over the world in an effort to ease the load of currency creation and minimise the influx of black money. With 87 per cent of its population having access to online banking in 2019, Sweden is anticipated to be the first nation to become cashless. The nation is technologically advanced, and practically all consumers accept digital payments. With a population of 10.9 million, Swish, a digital payment app, has 6.8 million users.
Cash robberies have significantly decreased as a result of Sweden’s decision to go cashless. Robberies involving cash in transportation decreased from 58% in 2009 to 1% in 2018. In a similar vein, bank robberies have decreased from 77% in 2009 to 11% in 2018. In China, 86 per cent of people prefer using digital payment methods to cash. The growing usage of digital payments has been matched by the nation’s cutting-edge technological infrastructure. More than half of the 4G base stations in use worldwide as of 2019 were in China. Additionally, technological advancements like the QR code, AliPay, WeChat Pay, and many others have assisted China in reducing its reliance on cash payments.
If India speeds up the digitization of commerce, it would benefit greatly. The shift to a cashless economy delivers convenience in the form of quick, simple transactions from any place, time and paperwork savings, the automated creation of digital footprints, and the correction of human errors. Additionally, when transactions are being recorded, it becomes simpler for the government to identify tax payment evasions.
The large MSME sector in India may be the area where digitalization has had the most revolutionary influence. They can gain access to a big consumer base by connecting to e-commerce platforms. Given that more and more clients are choosing digital forms of transactions, missing the digital bus becomes impossible. Additionally, digitalization gives MSMEs a record of their credit history, making it simpler for them to get financing. As the economy moves further toward digitalization, scams and duplication in payments would also decline.
According to the “Indian MSME Impact Report, 2019” by fintech business Instamojo, over two-thirds of the MSMEs questioned valued transactional ease and financial incentives to clients. The desire of customers for digital payment technologies, data security, and synchronisation was valued by another 20% of businesses.
It is clear that MSMEs are aware of the advantages of joining a strong digital payment ecosystem. From that standpoint, COVID-19 is only speeding up an already established move to digital payments, and more and more businesses are realising the price of delaying the change. In the future, MSMEs that make use of digital technology will be better positioned to benefit from the economic recovery and drive development.