'Beyond Cash'-Identifies Barriers and Solutions to a Digital,Inclusive Economy in India
The United States Agency for International Development (USAID) released a report identifying key ways to ensure the success of Prime Minister Narendra Modi's national mission for financial inclusion.
The report, Beyond Cash, highlights the current behaviors and perceptions of digital payments in low-income communities in India, and suggests ideas on how policy makers can accelerate the adoption of digital payments in the country. The study was conducted by strategic advisory firm Dalberg in six locations across four states.
Market data indicate that across India 97 percent of retail transactions are conducted in cash or check. Surprisingly, only 29% of bank accounts in India have been used in the last three months, only 6 percent of merchants accept digital payments, and just over 10 percent of consumers have used a debit card for payments in the last year.
With the launch of the Pradhan Mantri Jan-Dhan Yojana, supported by theAadhaar scheme, and with over one billion mobile phone connections, India has made remarkable strides toward achieving universal financial inclusion. But despite this tremendous progress, the use of digital payments in the country remains limited.
Digital payments can help consumers and merchants spend their money more safely and securely, save and build credit profiles for lending opportunities unavailable in the informal banking sector, and participate in a growing online economy. According to the World Bank, India could save approximately one percent of its GDP annually by digitizing cash-based subsidies alone.
The Report Beyond Cash found that merchants and consumers who currently use digital payments are highly satisfied with their experience, but interest in digital payments among current non-users is low. Many consumers don’t earn wages or save digitally, or there are few opportunities to use digital payments in their communities. Many merchants are comfortable operating in India’s “cash ecosystem” but are eager for more easy and cheap digital payment options.
The report suggests 10 ideas to drive greater consumer and merchant adoption and use of digital payments. These ideas include:
- Create opportunities for consumers to make digital contributions to micro-savings products.
- Incentivize current users to deepen use and bring other consumers onboard.
- Enable merchants to try digital payments at low or no cost.
- Digitize retailer-to-supplier payments.
The research findings are part of an ongoing partnership between the Government of India’s Ministry of Finance and USAID focused on increasing the use of digital payments at “point of sale”, particularly among low-income consumers. Over 35 key Indian, American and international organizations have partnered with the Ministry of Finance and USAID on this initiative. The goal of the partnership is to identify, test, and scale innovative approaches for expanding the use of digital payments at point of sale in order to increase financial inclusion.