BusinessAn instant digital payment system revolutionizes commerce in India

An instant digital payment system revolutionizes commerce in India

An instant digital payment system revolutionizes commerce in India

The little QR code is everywhere in the vastness of India.

You find it stuck to a tree next to a roadside barber, leaning against the pile of embroidery sold by knitters, sticking out of a mound of freshly roasted peanuts on a food cart. A performer on the beach in Bombay puts it in his tip jar before beginning his performance as a robot; a beggar in New Delhi shows it through your car window when you tell him you’re out of cash.

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The codes connect hundreds of millions of people through an instant payment system that has revolutionized Indian commerce. Billions of mobile app transactions — a volume that dwarfs any in the West — flow each month through a homegrown digital network that has facilitated business and brought large numbers of Indians into the formal economy.

The scan-and-pay system is a key element of what the country’s prime minister, Narendra Modi, has promoted as “digital public infrastructure”, the foundation of which has been laid by the government. He has made everyday life more convenient, extended banking services like credit and savings to millions more Indians, and expanded the reach of government programs and tax collection.

With this network, India has shown on a scale never seen before how quickly technological innovation can leapfrog for developing nations, generating economic growth even as physical infrastructure lags behind. It is a public-private model that India wants to export as it presents itself as an incubator of ideas that can uplift the world’s poorest nations.

“Our digital payments ecosystem has been developed as a free public good,” Modi told finance ministers from the Group of 20, which India is hosting this year, in late February. “This has radically transformed governance, financial inclusion and ease of living in India.”

In simple terms, Indian officials describe the digital infrastructure as a set of “railroads”, laid by the government, on which innovation can occur at low cost.

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In essence, it has been a massive campaign to give each citizen a unique identification number, called the Aadhaar. The initiative, started in 2009 by Modi’s predecessor, Manmohan Singh, was launched by Modi after overcoming years of legal challenges over privacy concerns.

The government claims that around 99 percent of adults now have a biometric ID number, with more than 1.3 billion IDs issued in total.

Nandan Nilekani, one of the co-founders of IT giant Infosys who has been involved in India’s digital ID efforts from the start, said the country could make a technological leap because it had little existing digital infrastructure. “India was able to develop again with a blank slate,” he said.

The IDs made it easy to create bank accounts and are the foundation of the instant payment system, known as the Unified Payment Interface (IPU). An initiative of India’s central bank and operated by a non-profit organization, the platform offers services from hundreds of banks and dozens of mobile payment apps, without transaction fees.

In January, about 8 billion transactions worth close to $200 billion were made on the IPU, according to Dilip Asbe, the managing director of the National Payments Corporation of India, which oversees the platform.

The value of immediate digital transactions last year was much higher than that of the United States, the United Kingdom, Germany and France. “Combine all four and multiply by four, it’s more than that,” said an Indian government minister, Ashwini Vaishnaw, at the World Economic Forum in January.

Asbe says the system has grown rapidly and is now used by about 300 million individuals and 50 million merchants. Digital payments are made for even the smallest transactions, about 50 percent of which are classified as small or micro payments: 10 cents for a cup of chai milk or two dollars for a bag of fresh vegetables. This is a significant behavioral shift in what has long been a cash-driven economy.

Modi’s decision in 2016 to remove all large denomination coins from the market was a push to move away from cash and encourage digital payments. Promoted as an effort to eliminate ill-gotten money in politics, the impact affected small businesses that operated with cash.

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Reliance on digital infrastructure has deepened during the pandemic, as the government used the numbers from the IDs to administer the world’s largest vaccination campaign and deliver financial aid.

As the system has been integrated into the life of the country, the concern for data privacy has not been completely forgotten, not even after the Supreme Court rulings regulating its use. Some people worry that the sharp erosion of checks on government power under Modi could open the door to abuses of the central identity database. If India pushes its model abroad, even in countries that lack strong legal safeguards, these concerns will surface.

Amitabh Kant, one of the main Indian coordinators of the Group of 20 events, said the government had found the right balance between privacy and innovation. “We have said that the data belongs to the individual and that the individual has the right to consent to every transaction he makes,” he said.

In two dozen interviews in various towns, small towns, and cities, a mixed picture of digital payments emerged. For a couple of shops in towns in the northern state of Uttar Pradesh, they made up about 10 percent of daily sales; in the busier markets of New Delhi, that figure could be a quarter or a half.

Even in sectors that have not yet embraced digital payments, such as the fishing industry in the southern state of Kerala, the basic building blocks of digital infrastructure—identity numbers, bank accounts, and mobile phone apps—have made it easier to provide services.

In markets where digital payments are available, the genuine excitement of people who are new to that method is palpable. App companies are working to ensure ease of use across a broad spectrum of digital literacy. Merchants on the same sidewalk help each other. Also, since we are talking about technology, the children help the parents.

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Small voice players provided by payment apps are common in food carts and tea stalls, where vendors are too busy to check phone messages after each small transaction. A Siri-like voice notifies how much money was received instantly with each QR code payment. This has helped alleviate mistrust among merchants, long accustomed to cash transactions.

Traders like the shoemaker and ice cream vendor at a market in central New Delhi who don’t have their own QR code simply borrow their neighbour’s. It is the digital version of: I have no change, but I will find the solution with the help of my neighbor.

“I used to prefer cash,” said Rajesh Kumar Srivastva, a motorcycle taxi driver in New Delhi. “But I saw the benefits of this during the lockdown.”

Before the pandemic, Srivastva pasted a QR code on the inside of her rickshawbut since only a quarter of his payments were digital, they were something he didn’t give much thought to.

Just before the 2020 lockdown, Srivastva paid off a hefty electricity bill and two installments on her car loan, depleting cash at home.

Their cash income was often not enough to justify trips in search of bank deposits. But his wife urged him to check the account linked to the digital payments. She didn’t know how to check his balance at an ATM, so he went with his daughter, a 20-year-old civil engineering student.

First, his daughter took out 5,000 rupees, about $60.

“He checked again and said: ‘Dad, 45,000 more to go,’” Srivastva said, before flashing a big smile. “I loved!”.

Mujib Mashal is the South Asia bureau chief for The New York Times. Born in Kabul, he wrote for magazines like The Atlantic, Harper’s, Time and others before joining The Times. @MujMash

Hari Kumar is a reporter in the New Delhi bureau. He joined the Times in 1997. @HariNYT

Source: NYT Español


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