Cashless transaction: A customer paying through UPI to avoid cash transactions at a medical store in Visakhapatnam. photo credit: KR Deepak
Cross-border connectivity between the two on Tuesday India’s Unified Payments Interface (UPI) and Singapore’s PayNow was launched. UPI is a popular mobile payment service that allows instant credit transfer from one bank account to another in India, while PayNow is its counterpart in Singapore. With the linkage, cross-border transfers between the two countries have become faster and cheaper.
The linkage is a watershed moment in India’s digital transaction journey. The value of cashless transactions, which were growing at a healthy pace before the pandemic, got a boost after the COVID-19 outbreak. According to data from the Bank for International Settlements (BIS), the total value of cashless payments was about $3 trillion as of 2012. It is set to double to $6 trillion by 2019 and grow to $7 trillion by 2021. (Chart 1), Cashless payments as a percentage of GDP to grow from 135% in 2012 to 193% in 2019 and 209% by 2021.
chart 1
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India is not alone in this progress. According to a recent brief published in BIS, emerging markets and developing economies including India are set to witness a rapid growth of 34% in the volume of cashless payments in 2021 and a 15% increase in the value of such transactions.
Digital credit transfers, including UPI, RTGS, NEFT and IMPS, were a major reason for the digital payments boom in India. (Chart 2), Digital credit transfers constituted about 20% of cashless payments as of 2012. They grow to 70% in 2019 and 78% by 2021. Cheques, a popular form of cashless payment in India, are dying out in the country.
chart 2
The replacement of checks with credit transfers was felt in most countries, although the decline was sharpest in India. (Chart 3). The chart shows the share of checks in cashless payments in 14 countries over time. India’s sharp decline in the share of checks in cashless payments (73% in 2012 to 13% in 2021) was the highest among countries. For example, in Singapore, the share dropped from about 62% to 32% over the same period. In other countries such as Canada and the US, the decline was less sharp than in India.
chart 3
This shows that India’s transition from checks to credit transfers as the preferred mode of cashless payment was faster than many other countries. chart 4 brings this point further. It shows checks and credit transfers as part of cashless payments for select countries in 2021. India’s cheque: credit transfer ratio in cashless payments was around 15:80 in 2021, compared to 20:48 in the US and 32 in Singapore. :52. However, countries such as Italy, Japan, France, Mexico and South Africa already had credit transfers as a significant part of their cashless payments, as they had low check penetration to begin with.
chart 4
Credit, debit cards and e-money are other growing cashless systems in India. chart 5 Shows the share of credit, debit and e-money payments as a percentage of cashless payments (not including checks or credit transfers). The share of e-money has increased significantly, although credit and debit cards continue to be used.
chart 5
Notably, while the number of Point-of-Sale (PoS) terminals has increased in India, the growth is still low compared to other BRICS countries. (Chart 6), Chart shows POS terminals per resident in BRICS countries over time. While India’s numbers are the lowest of the five, Brazil’s figures have increased significantly over the years.
chart 6
vignesh.r@thehindu.co.in
Source: Bank for International Settlements, BIS published brief titled, “Digital payments gain but cash remains”
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