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AIMING A BILLION TRANSACTIONS A DAY: DAWN OF DIGITAL PAYMENT

  • Digital payment transactions on the Universal Payment Interface (UPI) platform rising from 0.1 million in October 2016 to 1.3 billion in January 2020 represents the magic of entrepreneurs, nonprofits and policymakers working together
  • India was long a financially excluded nation — only 17 per cent of Indians had a bank account in 2011
  • The World Bank suggests it would have taken 50 more years for 80 per cent of Indians to get a bank account at the pre-2011 speed. Yet, we reached that milestone in 2018
  • A magical combination of political will (Jan Dhana Yojana and Aadhaar embedding), a proactive central bank (creating a non-profit market participant entity and leveling the playing field between non-banks and banks), and a technology stack with three layers (identity, payments, and data)

UPI offers five policy lessons:

  • First, how the India stack — interconnected yet independent platforms or open APIs — are a public good that lowers costs, spurs innovation, and blunts the natural digital winner-takes-all. Replicating this in education, healthcare, and government services are likely to be a harbinger of large scale multi-domain collaborative innovation.
  • Second, collaboration can create ecosystems that overcome the birth defects of its constituents — the execution deficit of government, the trust deficit of private companies, and the scale deficit of nonprofits.
  • Third, complementary policy interventions are important. Demonetisation and GST are changing the stories that firms and individuals tell themselves around cash and informality.
  • Fourth, human capital and diversity matter. This revolution needed career bureaucrats to partner with academics, tech entrepreneurs, venture capitalists, global giants and private firms.
  •  The final lesson is that India doesn’t need to be Western or Chinese to be modern. If our policymakers had copied Alipay or US banks, we wouldn’t have leapfrogged their birth defects.

However, there is more work to be done:

  • The central government must deadline digitizing all its payments.
  • The RBI must implement the 100-plus action items arising from its own Vision 2021 document and the Nandan Nilekani Committee for Deepening Digital Payments.
  • It must also make UPI and RuPay fit for use in our $70 billion inward remittances that currently come through exploitative financial institutions which don’t have clients but hostages.
  • RBI must replicate the core design of UPI — fierce but sustainable private and public competition — in bank credit because our 50 per cent credit-to -GDP ratio is one of the reasons India is poor
  • Converting the collective independence our citizens got in 1947 to individual freedom surely involved universal financial inclusion
  • Change has begun – the RBI, the finance ministry, and many individuals deserve our gratitude and wishes for a billion digital payments a month.
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October 2022
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