How digital payments drove financial inclusion in India

By Puja Sharma

Digital payments have helped solve the infrastructure challenges, offer convenience, and create a secure and convenient way to bring new businesses and micro-merchants into the digital ecosystem. With improved technology and awareness, digital payments provide people with a safe, secure, and seamless experience.

Digital payments saw an exponential spike in the pandemic era as the ease of doing transactions has motivated consumers to go digital. In the last couple of years, there has been tremendous growth in India’s online payments space as consumers and merchants have experienced the convenience and safety of digital adoption. This year’s theme for ‘Financial Literacy Week’ announced by the Reserve Bank of India (RBI), is ‘Go Digital, Go Secure’ in line with digital payments providing convenient and seamless experiences for consumers and contributing to financial inclusion across the region.

Digital payments have been one of the biggest drivers of e-commerce. The ease of getting goods delivered at the doorstep has made the consumers feel confident about ordering online and using digital payments. Additionally, digital payments allow consumers to enjoy a comfortable life by offering varied payment options as they don’t have to carry wads of cash or queue up for ATM withdrawals.

Adopting new methods of payments like contactless cards, tap-and-go, QR codes, etc., helps in mitigating risks, making digital payments simple and secure. These latest technologies facilitate advanced intelligence to assess behaviour patterns and create a layered defence against unauthorized access to information and avert online frauds. With improved technology and awareness, digital payments provide people with a safe, secure, and seamless experience. The introduction of Card-on-File Tokenization has will add a safety layer to the digitized payment ecosystem by replacing the card number with a unique alternate number called “token.”

In emerging economies today, two billion individuals and 200 million businesses lack access to savings and credit and even those who do have access pay dearly for a limited range of products. The rapidly spreading digital technologies now enable financial services to be offered at much lower costs, and therefore profitably, boosting financial inclusion and enhancing productivity across the economy. Although the benefits of digital finance have been widely noted, we hope to quantify just how large the economic impact could be, as per the Digital Finance For All: Powering Inclusive Growth In Emerging Economies report published by McKinsey.

A digital finance system has the potential to provide financial services to 1.6 billion people in emerging economies, more than half of whom are women. By reducing leakage in spending and tax revenue, the government could save $110b per year by increasing the volume of loans extended to individuals and businesses. As many as $4.2t could be added to the balance sheets of financial services providers by saving $400b annually indirect costs.

As with consumers, digital payments are often the gateway for small businesses into formal financial services. Digital payments integrated with their business systems have helped businesses cater to the changing consumer preference for digital payments, scale up their business, and develop a digital financial footprint, which they can use to seek formal credit from financial institutions. In addition, digital payments have further helped solve the infrastructure challenges, offer convenience, and create a secure and convenient way to bring new businesses and micro-merchants into the digital ecosystem.

Increasing access to finance through digital means can boost productivity and investment, reduce poverty, empower women, and build stronger institutions with less corruption-all while providing a profitable, sustainable business opportunity for financial service providers. Economic prospects of emerging economies can be transformed as a result of the benefits for individuals, businesses, and governments.