This year’s Budget contained no reference to fintech firms or digital payments, though fintech companies called for lower Tax Deduction at Source (TDS) for start-ups, and waiver of GST for financial services offered by banking correspondents.

This could be possibly because India has made great strides in digital financial innovation of late. Thanks to various initiatives coupled with a vibrant domestic fintech start-up ecosystem, it’s now quite easy to use digital payment modes through the indigenously developed Unified Payment Interface (UPI).

Using a simple (often ubiquitous) QR code, digital payments can be made peer-to-peer and peer-to-merchant across bank accounts, enabling much-needed flexibility to users. Though “cash is the king” in large value transactions, digital payments in India have enabled micro payments, enabling street vendors and small store owners to have money deposited directly in their accounts.

RBI data show the extent of digital financial inclusion in India. The volume of digital payments through UPI was about 154 billion in number last financial year, representing a large proportion of total payments made in the country.

Compare this with the volume of cash withdrawal in India’s Automated Teller Machines (ATMs) which is only about 8 billion in number. Digital payments in India appear to contribute to a larger proportion of total payment transfers in terms of value, compared to cash withdrawals.

Though urban areas and high-income users are quick to adopt digital financial services, the recent Amazon Pay Kearney report indicates that the future growth of digital payments in India will come from smaller cities and low-income populations.

Viksit Bharat vs ‘Viksit’ US

How does India aspiring to become Viksit Bharat by 2047 compare with Viksit US? The US has undoubtedly embraced digital payments for a long time with nine out of 10 users using some form of digital payment services.

A report by Onbe and NRG reported that security (88 per cent) and convenience (85 per cent) were among US customers’ top preferences when receiving a payout. The use of mobile wallets and payment apps continues to grow: 67 per cent and 73 per cent of customers are expected to use these services as much or more in 2024.

What is little known, however, is that the US digital financial systems are, even today, archaic. In all banks, credit unions and financial institutions, only physical presence is accepted for any significant transactions such as a relatively larger amount of withdrawal.

In some credit unions, only cash is accepted for bulk deposits, even to the tune of thousands of dollars, at the risk of its safety. Besides, banks have security alarms which get triggered when more than a certain amount of cash is withdrawn on the same day, due to their arrangements with third party intermediaries and for preventing fraudulent transactions. The effect such algorithmic control has on a user can sometimes be devastating.

Further, the flexibility and choices for customers continues to be limited in the US. Per a recent McKinsey report, there has been consolidation in the US digital wallet ecosystem. About 31 per cent of the users surveyed in the report indicated that they used a single wallet for their transactions, which is partly due to the closed payment ecosystem dominated by players such as PayPal and Apple Pay in the US.

If credit cards make spending easier than cash, digital transactions would make it even easier for consumers to spend, which can be used as a tool to prime the economy during a recession. However, this requires a frictionless inter-operable and open digital payment ecosystem. Perhaps, the US can take a lesson or two from India’s UPI journey.

The writers are, respectively, professors at the Institute for Social and Economic Change/Honorary Fellow at Stanford University’s Center for South Asia, and International Institute of Information Technology.

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