Cyber security, customer protection and cost efficiency are essential to sustain the momentum towards digital payments driven by the Covid pandemic, a Reserve Bank paper said on Tuesday.
The transactional use of cash has declined and is increasingly being replaced by digital payment methods, even as cash’s store-of-value role remains intact, said the paper titled “Cash versus Digital Payment Transactions in India: Decoding the”. Paradox of Monetary Demand’.
In line with the global index, the pandemic caused a temporary increase in foreign exchange demand in India driven mainly by precautionary and stockpile value motives.
To continue the momentum towards digital payments initiated by the pandemic, concerted efforts are needed to ensure the cost-effectiveness of payment methods and relevant acceptance infrastructures from both sides of demand (consumers) and supply (merchants and intermediaries); and ensure universal access to enablers, such as smartphones and internet connectivity, it said.
The paper authored by Sakshi Awasthy, Rekha Misra and Sarat Dhal, all associated with RBI’s Department of Economic and Policy Research (DEPR), further said that efforts are needed to strengthen financial inclusion and literacy; and protect cybersecurity and customer protection.
The authors further said that despite the traction observed in digital payments, cash continues due to a strong inclination of the population to trade and save in cash.
Moreover, cash serves as the de facto foundation for all types of payments.
“It also plays a crucial role in facilitating transactions between the formal and informal sectors as well as with segments of the population that are financially excluded and lack digital awareness,” the paper said.
In addition, the use and adoption of digital payments remains concentrated in regions characterized by higher levels of development, it added.
“The success of digitization extends beyond mere money substitution; it has wider implications for economic growth, development of financial markets, financial well-being of households and effective governance,” it said.
Given the continued expansion of digital payments and the moderation in money demand growth witnessed post-pandemic, the high cash usage observed during the pandemic may not translate into permanent change, the paper said.