While higher per capita income, rising domestic credit to private sector, greater internet penetration, and lower inflation promote digital payments, a higher share of agricultural employment in total employment and higher share of agricultural value-added in gross domestic product (GDP) were found to be associated with lower digital payments.
Hence, an RBI paper ‘Drivers of Digital Payments: A Cross-country Study,’ suggests that in order to push digital payments, a conducive macroeconomic environment and a safe and easy access to digital infrastructure are a necessity.
Although, digital payments have been growing in value and volume terms across countries, data suggests that during the same time, currency in circulation to GDP ratio increased in consonance with the overall economic growth. However, several anomalies are visible.
First, the spread and intensity of use of digital payments don’t have specific relationship with how developed a country is — several advanced economies (AEs) have low digital payments to GDP ratio, while some emerging market economies (EMEs) have ratios comparable to AEs. Second, an increase in digital payments to GDP ratio doesn’t automatically imply a fall in the currency to GDP ratio. The volume of non-cash transactions globally grew at a CAGR of 9.8 per cent during 2012-16, driven by emerging Asia, Central Europe, Middle East and Africa. Even though AEs accounted for a majority of non-cash transactions, EMEs are catching up.
According to the study, the spread and intensity of digital payments usage need not always increase in tandem with a country’s GDP level. While some AEs like Germany have low digital payments to GDP ratio, it’s similar to EMEs or AEs like Brazil and Belgium. In contrast, a high GDP level also doesn’t automatically imply low currency usage. For instance, Japan has one of the highest currencies to GDP ratio — higher than most EMEs — and one of the lowest cashless payments to GDP ratio in the world, the Reserve Bank of India (RBI) report noted.
Second, increase in digital payments to GDP ratio doesn’t result in corresponding lower of currency usage. For instance, digital payments to GDP ratio increased significantly during the decade ending 2016 in Brazil, Mexico, Saudi Arabia and India, but the currency to GDP ratio in these countries remained stable or even increased.
Meanwhile, in India, although digital payments to GDP ratio has been traditionally low, it shot up after demonetisation. The per person digital payments, both in terms of value and volume rose concomitantly. Retail electronic payments are consistently rising since 2011-12, thanks to Prepaid Payment Instruments and Unified Payments Interface, while card payments have been declining, although it continues to be the most important component in terms of value, payments through real time gross settlement and Clearing Corporation of India Ltd dominate. Similarly, the share of paper clearing is declining in volume and value during FY19.
The usage of debit cards at point of sale (POS) machines as a proportion of its total usage saw sharp uptick in recent times, with volumes growing from 6 to 31 per cent during FY2012-19, value rising from 3 to 16 per cent. The number of POS terminals and debit and credit cards usage rose significantly during FY17 on account of demonetisation, though they declined (at POS terminals) post-demonetisation. Notwithstanding the progress, the usage of digital medium for payments remains luch lower than major advanced and emerging economies.