Cashless Payments Increased 22% in 2016, Mobile Has Fastest Growth
In a year that will be remembered for note bandi – a colloquial term for the withdrawal of 86 percent of the value of India’s currency in circulation on 8 November – cashless payments in October 2016 increased 22 percent, when compared to October 2015, indicating that Indians have been steadily more accepting of various digital payments modes since last year.
Money transfers using mobile banking and immediate payment system (IMPS)–wherein money is transferred instantly using text messaging or online banking–showed the highest increase in over 12 months ending October 2016. Mobile banking transactions grew 175 percent, while money transacted using mobile banking grew 369 percent from October to October, according to an IndiaSpend analysis of Reserve Bank of India (RBI) data.
IMPS transactions grew 116 percent while IMPS transfers grew 150 percent over 12 months ending October 2016. Number of transactions using Prepaid Payment Instruments (PPIs) that include mobile wallets doubled in a year in the same period.
Cheque transactions and payments remained largely unchanged over 2016, while money transfers using national electronic funds transfer (NEFT) – through which money is transferred in batches, after approval from the banks sending and receiving money – and transactions over Point of Sale terminals (debit card swipe machines) grew 16 percent and 35 percent, respectively, in 2016 (October over October), as compared to mobile, smartphone and app based payment platforms.
Digital Transactions Faster Than Growth in Consumption
Consumption of goods and services by people and the government in the second quarter of the financial year 2016-17 – 1 July to 30 September – grew 2.8 percent over the previous quarter (April to June), according to data from the central statistics office.
Over the same period, non-cash payments – NEFT, IMPS, PPI, mobile banking, point of sale (PoS) terminals and National Automated Clearing House (NACH) – rose 6 percent, showing that digital transactions rose faster than consumption.This suggests that cash transactions have been reducing since January 2016.
The NACH is used for making bulk transactions towards distribution of subsidies, dividends, interest, salaries, pensions, and for bulk transactions towards collection of payments pertaining to telephone, electricity and water bills, loans, investments in mutual funds and insurance premiums.
In places where banks do not have sufficient branches, banking correspondents reach out to people directly, and use the Aadhaar Enabled Payment System (AEPS) to transfer money under government schemes, such as old age pensions, Mahatma Gandhi National Rural Employment Guarantee Scheme (NREGA) etc.
Payments made under AEPS rose 12 times from April 2016 to October 2016.
We have used RBI updates of daily representative data, by transaction and value, for banking on digital platforms for November and December 2016. Unlike the data till October 2016, which represent digital transactions for all banks, data for November and December are limited. Credit and debit card transactions pertain to four banks, mobile banking data for five and prepaid payment instruments transactions data for eight ‘non-bank issuers’, details of which have not been specified in the RBI document.
Consumers used the Unified Payments Interface, or UPI, the mobile payments platform, released in August 2016, for 3,00,000 transactions amounting to Rs 90 crore in November 2016. The number grew to 1.4 million transactions, worth Rs 480 crore, till 25 December 2016.
There were 7,000 transactions, amounting to Rs 73 lakh, in November 2016 through the Unstructured Supplementary Service Data (USSD), which uses mobile networks, and not the Internet, making it the least used digital payment platform by number and value of transactions.
USSD transactions rose to 60,000 in December 2016, amounting to Rs 6.6 crore until 25 December 2016.
Correction: Our reader Keshav Sunkara pointed out that we missed riders to the Reserve Bank of India (RBI) data. The story has been updated to represent correct interpretation of the RBI data. In an earlier version, we erred in comparing the actual digital payments data till October 2016, with representative data for November and December 2016. The data will be comparable only when the final, and not the representative, data for November and December become available. Therefore, the correlation of apparent drop in digital payments in November with demonetisation is incorrect. We regret the error. We have also accordingly changed the headline.
(Abhishek Waghmare is an analyst with IndiaSpend. This article was published in an association with IndiaSpend.)
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