JOIN USUPI on feature phones a welcome plan
The Reserve Bank of India’s recent proposals on Unified Payments Interface (UPI) and digital payments are welcome as they are expected to deepen the digital economy and increase financial inclusiveness. The RBI has announced a plan to extend the facility of UPI payments to feature phones and to release a discussion paper on digital payment charges (including cards, wallets, and fin-tech, as well as the UPI). It will be technically challenging to incorporate UPI on feature phones but it will be very rewarding. At present only about half of the country’s 960 million mobile subscribers have access to the UPI facility, which is available on smartphones. Most of those who use feature phones are in rural areas or belong to lower-income groups. The introduction of the UPI facility on their phones would bring them into the digital payments ecosystem and expand the footprint of UPI as such.
The UPI has contributed much to India’s digital payments revolution. The pandemic-induced mobility restrictions ensured its increased usage. The value of monthly transactions increased from Rs 1.8 lakh crore in November 2019 to Rs 7.6 lakh crore in November 2021. The RBI is trying to further build on it. In comparison, the growth of transactions through traditional banking channels was much less. A large number of transactions in the country are below the Rs 500 threshold and widening the UPI ambit would help to make a part of those transactions digital. This can lead to reduced use of cash in the form of coins and low denomination currency notes in the informal economy. The tracking of online transactions will help to better study the behaviour of these important sectors. The RBI has also proposed to enhance the transaction limit for payments through UPI for retail buying of government securities and for other market activities like IPO applications from Rs 2 lakh to Rs 5 lakh. This will help to encourage greater participation of retail customers in financial markets. This will widen the market and give it more stability. It will also have implications for household savings. It is believed that markets, including global markets, can be better integrated with seamless payments and better safeguards.
The more important part of the RBI plan is the facilitation of small payments through digital transactions through feature phones. Despite the growth in digital transactions, cash circulation in the economy has grown 17% over the pre-demonetisation levels of October 2016. Even if the RBI implements its proposals early, it will take some time for it to spread among the target population. Once that happens, the impact is likely to be remarkable.