Gamechanger: The Digital Payment Boom in India

IMF Blog, January 5, 2018

Source details

Publication: The Editors, January 5, 2018.
Theme: Rapid expansion of digital payments in India following government demonetization and growth of smartphone penetration.
Context: November demonetization declared that 86 percent of the country’s currency in circulation would cease to be legal tender, creating a strong push toward digital payment platforms such as Paytm.

Demonetization shock in November prompted rapid adoption of digital payments as cash availability declined.
Smart-phone penetration growth is credited as a principal enabler; prior to four years ago mobile payments were effectively non-existent in India.
Short- to medium-term projection by Paytm CFO Madhur Deora: in the next few years, 60-70% of the population will have smart phones.
Timeframe for transformative impact: Deora suggests the opportunity to solve longstanding problems over the next, literally, five years.

Mobile platforms are expanding access to basic and advanced financial services for previously unbanked people:
- Enabling account opening for those who previously couldn’t open a bank account.
- Providing access to credit and small loans for people without prior credit history.
- Offering access to savings products due to very low distribution costs on digital platforms.

For finance ministers and central bankers:
- Digital payments improve the ability to more accurately assess economic activity.
- Digital transactions facilitate more efficient taxation.
On regulation:
- While some actors may be cautious about regulation, Deora views regulation as helpful rather than hindering development-related problems.
- Regulators worldwide are increasingly recognizing technology’s potential to address lack of financial inclusion present in many emerging markets.

“All bodies around the world—whether they’re central banks, the IMF, World Bank or the World Economic Forum—are seeing this as perhaps one of the top two or three changes or developments around the world that can have the biggest impact.” — Madhur Deora
“Some of the problems that have existed for decades, 50 years, maybe 100 years in some places—we really have the opportunity to solve a lot of those problems over the next, literally, five years.” — Madhur Deora
“We can solve for borrowing, access to credit. We can also solve for access to savings products, because our distribution is very, very cheap.” — Madhur Deora
“Lack of financial inclusion, which is present in most emerging markets is a problem that bothers well-meaning central bankers. I think regulators around the world have woken up to the fact that technologies can solve those problems.” — Madhur Deora

86 percent — share of India’s currency in circulation declared no longer legal tender by demonetization.
four years — timeframe reference: until four years ago, mobile payments didn’t exist in India.
60-70% of the population — projected smart-phone penetration in the next few years.
five years — horizon Deora uses for solving longstanding financial problems.
191 countries — membership size of the IMF (as described in the ABOUT THE BLOG section).

Article: "Gamechanger: The Digital Payment Boom in India", IMFBlog, The Editors, January 5, 2018.