Cashless transactions: A customer paying via UPI to avoid cash transactions at a medical store in Visakhapatnam | Photo credit: KR Deepak
On Tuesday, cross-border connectivity between India’s Unified Payment Interface (UPI) and Singapore’s PayNow was launched. UPI is a popular mobile payment service that allows instant transfer from one bank account to another in India, while PayNow is its Singaporean equivalent. Thanks to this link, cross-border transfers between the two countries have become faster and cheaper.
The link marks an important moment in the journey of digital transactions in India. The value of cashless transactions, which grew at a healthy pace before the pandemic, took a boost after the COVID-19 outbreak. According to data from the Bank for International Settlements (BIS), the total value of cashless payments was around $3 trillion in 2012. It doubled to $6 trillion in 2019 and jumped to 7 trillion. billion dollars in 2021. (Chart 1). Cashless payments as a percentage of GDP increased from 135% in 2012 to 193% in 2019 and 209% in 2021.
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India is not alone in this progress. According to a recent note published in the BIS, the volume of cashless payments increased sharply by 34% in 2021 in emerging markets and developing economies, including India, and the value of these transactions increased by 15%. .
Digital transfers, which include UPI, RTGS, NEFT and IMPS, have been one of the main reasons for the increase in digital payments in India (Graph 2). Digital transfers accounted for around 20% of cashless payments in 2012. They increased to 70% in 2019 and 78% in 2021. Checks, a famous form of cashless payment in India, are coming out in the country .
The substitution of checks for transfers was felt in most countries, although the decline in India was the largest (Chart 3). The graph shows the share of checks in cashless payments in 14 countries over time. The drastic decline in the share of checks in cashless payments in India (73% in 2012 to 13% in 2021) has been the steepest among the countries. For example, in Singapore, over the same period, the share fell from around 62% to 32%. In other countries such as Canada and the United States, the decline was less pronounced than that of India.
This shows that India’s transition to transfers from checks as the preferred mode of cashless payment has been faster than in many other countries. Chart 4 brings out this point further. It shows checks and transfers as a share of cashless payments for selected countries in 2021. India’s check-to-transfer ratio in cashless payments was around 15:80 in 2021, while that of the states United was 20:48 and Singapore was 32:52. However, countries like Italy, Japan, France, Mexico, and South Africa already had a very high share of wire transfers in their cashless payments, as their check penetration was lower to begin with.
Credit cards, debit cards and e-money are other growing cashless systems in India. Chart 5 shows the share of credit, debit and electronic money payments as a percentage of cashless payments (checks and transfers not included). The share of e-money has increased significantly, although the use of credit and debit cards continues to dominate.
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). The graph shows PoS terminals per capita in BRICS countries over time. While India’s number is the lowest among the five, Brazil’s numbers have increased significantly in recent years.
Source: Bank for International Settlements, BIS released a note titled “Digital payments make gains but money remains”
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