Despite the traction observed in digital payments, cash persists due to a strong inclination of the populace to transact and save in cash, according to an RBI paper.
“Cash serves as the de facto foundation for all types of payments. It also plays a crucial role in facilitating transactions between the formal and informal sectors as well as with segments of the population that are financially excluded and lack digital awareness. Furthermore, the usage and adoption of digital payments remain concentrated in regions characterised by higher levels of development,” the paper penned by Sakshi Awasthy, Rekha Misra and Sarat Dhal said.
However, it said given the ongoing expansion of digital payments and the moderation in the growth of currency demand witnessed post-pandemic, the high cash usage observed during the pandemic may not translate into a permanent shift.
Shifting pattern
Digital payments are substituting the transactional demand for cash, but the store-of-value motive of holding cash remains intact, it said.
“Illustratively, this is evident from the currency in circulation (CiC) growth being primarily driven by the demand for large-denomination banknotes, which have witnessed an increase in their proportion of total CiC, said the paper.
There has been a decline in the share of low denomination notes, partly due to the substitution of small-value payments through UPI and mobile wallets, as corroborated by their narrowing ticket sizes. Further, lower transactional cash demand is also indicated by reduced cash withdrawals from ATMs.
Promoting digital
To sustain the momentum towards digital payments initiated by the pandemic, concerted efforts are needed to
(a) ensure the cost-effectiveness of payment modes and relevant acceptance infrastructure from both the demand (consumers) and supply sides (merchants and intermediaries),
(b) ensure universal access to enablers, such as smartphones and internet connectivity,
(c) bolster financial inclusion and literacy, and
(d) safeguard cybersecurity and customer protection.
To give stimulus to the digital drive, the RBI has taken several measures such as round-the-clock operability of centralised payment systems, implementation of a Payment Infrastructure Development Fund for subsidised deployment of payment acceptance infrastructure, launch of the UPI123Pay for feature phone users, prepaid payment instrument (PPI) interoperability, launch of the retail and wholesale central bank digital currency (CBDC) pilot projects, among others.
Finally, the success of digitalisation extends beyond mere cash substitution; it has broader implications for economic growth, development of financial markets, financial well-being of households, and effective governance, the paper said.
