Digital payments rise, cash transactions decline over 3 years: RBI

Cash will still account for 60 percent of consumer spending by March 2024, but its dominance is waning rapidly due to the shift to digital payments following the COVID-19 pandemic, according to a study by a economist at the Reserve Bank of India (RBI). , as reported by The Economic Times. The share of digital payments has more than doubled from 14-19% in March 2021 to 40-48% in March 2024.

Pradip Bhuyan of the RBI’s foreign exchange management department said, “A cash usage indicator (CUI) that takes into account both physical and digital modes of payment indicates that cash usage continues being significant, but has been decreasing over the study period.”

Its research ‘Cash Usage Indicator for India’ looked at trends in consumer spending from 2011-12 to 2023-24.

According to Bhuyan, the cash usage indicator (CUI), which measures the share of cash in private final consumption expenditure, declined from 81-86 percent from January to March 2021 to 52-60 per hundred from January to March 2024. He noted. , “CUI is a quarterly indicator and can facilitate currency management.” Bhuyan also stressed that the views expressed in his paper are his own and do not necessarily represent the position of the central bank.

The report highlighted that the United Payments Interface (UPI), introduced during the 2016 demonetisation of Rs 500 and Rs 1,000 notes, gained traction only after the lockdowns caused by the COVID-19 pandemic in 2020. Although the average transaction size for UPI was Rs 3,872 in 2016-17, falling to Rs 1,525 in 2023-24, reflecting its increasing use for lower-value purchases.

The study further highlighted that cash remains the preferred method for low-value transactions. However, the currency to public (CWP) to gross domestic product (GDP) ratio, which peaked at 13.9% in 2020-21 post demonetisation, has come down to 11 .5% in 2023-24. In contrast, United Payments Interface (UPI) share in person-to-merchant (P2M) transactions has grown significantly, from 33% in value terms in 2020-21 to 69% in 2023-24. In terms of transaction volume, UPI’s share increased from 51% to 87% during the same period.

Bhuyan concluded that the decline in the average size of UPI transactions, the increase in the share of P2M transactions and the moderation in the CWP-GDP ratio in 2023-24 indicate a significant shift from cash to UPI to to transactions of lower value.

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