India’s progress in financial inclusion and digital payments over the past few years has been beautifully brought out by the Economic Survey 2021-22, which has thankfully, reverted to its original format of hard data and facts. The Economic Survey has included UPI as one of the high-frequency indicators of economic activity in the country. The graph below shows the dramatic rise in adoption of UPI ( Page 20) and overtaking ATM withdrawals in value terms from the first lockdown in 2020.

UPI and ATM transactions in value, Economic Survey 2021-22. Image credit: Swarajya

While UPI has been a game-changer in its simple user interface, the current popularity may also stem from the absence of any charges. It will be interesting to see recommendations from the forthcoming report from RBI on transaction charges for retail payments and how this will play out over the years.

Further, NPCI is working on an offline version named UPI Lite, that will enable low value payments of less than Rs. 200 without network connectivity – this will make the UPI platform accessible to those who face data access challenges across rural India.

There is one intriguing announcement in Finance Minister’s Budget Speech on 1st February – “ to mark 75 years of our independence, it is proposed to set up 75 Digital Banking Units (DBUs) in 75 districts of the country by Scheduled Commercial Banks”. In the absence of more information, it is difficult to comment on its relevance to financial inclusion and greater details are awaited. For instance, it is not clear why we need fresh investment in DBUs, when there are other large networks already in place that are under-utilised, such as the 1.5 lakh post offices that the FM had stated would all be covered under the Core Banking System this year. In fact, while the India Post Payments Bank has seen commendable progress, crossing 5 crore accounts, the fact that it has been posting high losses indicates that the existing synergies with the Department of Posts are not being optimized (Read more at Moneycontrol, January 27th, 2022) and need a relook.

Talking of losses, the viability of the BC network in the country has been under the scanner for many years – and one of the factors which can be easily resolved by the Finance Ministry deals with taxation. Just before the Budget, Anand Bajaj of PayNearby put together the asks from the BC ecosystem, which were also covered in a detailed note by Fabrizio Valenti, LEAD at Krea University last year. Key asks include the removal of TDS deductions for all BCs, applying 0 percent GST on all BC transactions and also finding a solution to distinguish rural from urban accounts. There is much meat in these asks and we hope that the Working Group constituted by the DFS in December will examine such long standing issues and work towards resolution.

Our latest White Paper looks at the potential of the Account Aggregator framework in India as a gamechanger for financial inclusion. The paper, co-authored by Anantha, Laveesh and I, looks to answer three questions: a) How would we monitor the performance of the Account Aggregator framework? b) What are the prerequisites for success? and c) What should different players in the ecosystem do to make it succeed? Do read and share your feedback!

Finally, we extend our congratulations to our colleague and co-author Anantha (Dr V Anantha Nageswaran) on becoming India’s next CEA. It has been a pleasure and great experience working with him over the past year at Indicus Centre for Financial Inclusion (ICFI), learning from his nuanced take on the policy and regulatory issues, and we wish him the very best in his new office.

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Do follow our  Indicus Centre for Financial Inclusion page on Linkedin to continue the conversation. Read on here for more of the latest news and views on financial inclusion in India.

•    NASSCOM released a report, “ India Digital Payments 4.0: 2025 Outlook” documenting the phenomenal growth of digital payments in India over the past two decades, and set out four regulatory and policy asks for the next leap of growth - rationalization of transaction costs for cross-platform merchant payments, secure data and enhanced fraud management frameworks, simplified centralized and digitizes KYC policy and interoperable and offline payments infrastructure.
•    Majorie Chalwe-Mulenga, Eric Duflos, and Gerhard Coetzee, CGAP, have an excellent deck out on the emerging consumer risks in digital financial services, the increasing vulnerability of low income women and rural populations and the need for regulators to up their ante on monitoring and supervision to mitigate these risks.
•    Akhand Tiwari, Moinuddin Mohammed and Ravi Kant, MSC, have put together lessons from their pilot project with Centre for Development Orientation and Training (CDOT) looking at the challenges faced by BCs in passing the IIBF BC/BF exam, giving suggestions to policymakers on graded certifications based on the type of services offered by BCs.
•    Niyati Agrawal, Rakshith Ponnathpur, Sahana Seetharaman and Misha Sharma, Dvara Research have a deck out collating insights from the All-India Debt and Investment Survey 2019, highlighting the need for greater push for access to financial services for all.
•    Tenzin Varma, Vishes Jena and Anshul Saxena, MSC, report on the impact of Covid-19 on fintechs in India, the innovative responses, measures of support from government and others and the change in behavior and adoption of digitized products by Indian customers.
•    The RBI announced the Digital Payments Index for September 2021 at 304.06 as against 270.59 for March 2021.