Digital banking is impacting India’s rural economy; here’s how

Sixty percent of Indians remain in rural India, which has a significant impact on the country’s economic progress. What has changed especially in rural India is the Jan Dhan (JAM) account:

Jhan Dhan Account: 90% of eligible Indians now have a bank account

Aadhar number: Over a billion Indians have Aadhar

Cell phone / smartphone penetration: around 600 million smart phones with high data speeds at affordable rates

The Indian economy is one of the fastest growing economies in the world despite COVID and there have been some significant developments especially in the digital transaction space.

a) Post-COVID UPI transactions increased to 2,800 million transactions per month compared to 1,300 million transactions previously,

b) Post-COVID, Ape’s transactions went from 200 million transactions per month to 400 million transactions previously,

In the above two growth engines in digital transactions, a large part comes from rural India.

Digital payments in the rural sector

In the pre-COVID period, very few merchants and consumers in the rural segments used digital payment solutions, but after COVID there was an exponential growth in the number of users using PoS, biometric devices for AePS withdrawal, QR code for UPI payment acceptance.

The government encouraging the public with incentives to use the United Payment Interface (UPI), reducing the service charge for digital transactions for government electronic services means that there is a huge transformation towards digital payments.

Opportunities for digital payments

Digital payments in India are in their infancy, and there is a push from various circles to adapt the digital payment solutions platform.

Limit the scope of cash payments

The RBI has regulated cash payments in a phased manner, for example by imposing restrictions and taxes on the cash purchase of jewelry beyond a prescribed value.

Impose transaction fees for cash payments for payments to vendors, suppliers and services, etc. and higher transaction fees for banking transactions like cash with withdrawal deposits etc.

More control over cash transactions

Launch of more digital payment solutions

Although India is a cash-based economy, the transition to the digital economy has slowly started.

RBI issues payment banking licenses to numerous FinTech companies

Strategic launch of UPI solutions like BHIM by GOI, and also allowing large private players like Google Pay, Amazon Pay, PhonePe, etc. enable hassle-free digital transactions

Aadhar based payment solutions are emerging strongly in the Indian market as AePS, Aadhar Pay, signifies the potential scope to make digital payments even with multifunction phones.

Encourage consumers

RBI reducing or ending cross transaction cost for bankers and UPI solutions to incentivize them to reduce transaction cost for end users.

Market factors

In the current scenario,

a) The mobile banking process, IMPS solutions have become simpler

b) Growing number of e-commerce companies offering their services in rural segments

c) Direct and indirect government initiatives aimed at improving banking services, compliance standards

d) Issuance of “RuPay cards” linked to Jan Dhan accounts (zero balance accounts)

e) Kisan credit cards issued to farmers allow the activation of Post z and biometric solutions for rural traders.

To sum up, COVID has been a blessing for the spread and use of various digital payments, from cards to UPI to AePS, which has opened up opportunities that are developing the dynamics of the digital payments market in rural India.

(S Anand is the CEO and co-founder of PaySprint, a fintech company focused on next generation banking solutions, offering a unified open API platform.)

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Posted: Monday Aug 16, 2021 11:17 IST

About Keneth T. Graves

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