#PayTech #Digital Payments in India: The Urban & Rural Divide
Blog: NASSCOM Official Blog
With the onset of Covid 19 in India, digital and contactless payments in India have surely leapfrogged like never before, especially urban India.
Urban India has specifically leapfrogged the credit-card stage to the digital retail payment – with a whopping 94% already relying on digital payments since March 2020!
The semi-urban cities of India, i.e. Tier 2 and Tier 3 cities are also fast catching up on the digital payments front. Digital payments in certain tier 2, 3 cities have grown two and a half times faster as compared to urban areas. Some urban and semi-urban cities, those with populations < 1 mn, in India, are expected to be the sharpest-growing in terms of digital payments in the coming few years and are capable of constituting about one-third of total consumer spending by 2025!
However, the urban-rural India divide in terms of digital payment adoption continues to exist in India.
Even though many government organizations such as the RBI and NPCI, have been trying to give a huge push to digital payments adoption in rural areas as well, the percentage of adopters in rural areas has been very small so far.
As of December 2019, a mere 16% of rural users access the internet for digital transactions as compared to nearly 45% of urban users. (Source: Internet and Mobile Association of India)
Top 3 Reasons for the Urban-Rural Divide to exist in India’s Digital Payments:
- Lack of Infrastructure – Lack of sufficient digital payment infrastructure like ATMs, POS Terminals at all retail, grocery or small stores, lack of even micro ATMs, digital kiosks, etc. limited digital access points like Common Service centers (CSCs), etc. is one of the main reasons why people in rural India still rely mainly on cash for most of their transactions.
According to the latest report, rural India hosts only about 40,000 odd ATMs where 62% of the Indian population resides!
- Lack of Internet & Smart Phone Accessibility – In addition to lack of digital payment infrastructure, another vital reason for low digital payment adoption in rural India is poor penetration of internet and smartphones in rural India while most of the digital payment options available today mainly rely on good internet connectivity and/or use of a smartphone.
Rural Internet usage has gained in recent months as per the new government reports, still, there’s a big gap in the internet penetration between rural and urban India.
- Limited Digital Literacy – Limited digital literacy and awareness either about the various digital payment options available or about how to use them securely is another top reason for low digital payment adoption among the rural population.
According to a report published by a CSR journal in April 2018, in India, approximately 40% population is living below the poverty line, the illiteracy rate is more than 25-30% and digital literacy is almost non-existent among more than 90% of the population. The numbers would have improved by now, but digital illiteracy is a huge roadblock indeed even now in increasing the digital payment adoption in rural India.
Covid 19 has pushed certain digital payment methods to start picking up in rural areas:
Rural India has specifically seen an increase in the usage of certain digital modes of payment during the current pandemic. – Short to Medium Term Effects of COVID 19.
- Mini ATMs and digital kioskshave specifically picked up since May 2020 in the rural areas. Many banks like HDFC, ICICI bank, etc. deployed mobile ATM vans during the lockdown in India, extending its reach to a lot of remote and rural areas.
- Similarly, AePS (Aadhar enables payment service) has also seen a rise in its usage during the current pandemic. In April-May 2020, around 1 Lakh daily AePS withdrawals, amounting to INR 13 Cr, were processed through 15K digital kiosks in rural areas. (RBI).
The India Post Payments Bank has played a key role in this with doorstep AePS cash withdrawal in remote and rural areas during the nation-wide lockdown in India.
The Way Forward:
To bridge the divide in digital payments adoption in rural and urban India in the long run, it is extremely important to not just increase the internet and mobile phone penetration in rural areas, but also focus on increasing the reach of the right payment infrastructure like PoS terminals, micro ATMs, etc. across the length and breadth of rural India.
Additionally, it is extremely vital to enhance the digital literacy levels of individuals as well as merchant/kirana store players in the remote areas of India as awareness of various digital payments, their benefits and how to use them easily – can brush out the initial inhibitions and give birth to a lot of first-time users of digital payments.
Creating low-cost digital payments infrastructure, a digital payment access point (in the form of interoperable cash-in/cash-out system for Bank – Mitra using AEPS) within 200-300 meters of every person, along with enhanced awareness on digital payment options are the 3 keys to push the people of India from cash to digital payments, magnifying digital payments adoption like never before! Additionally, developing and deploying offline digital payment solutions to help overcome network constraints in the rural areas, will come in a long way in maximizing digital inclusion even in the remotest areas of India.
With many tech giants like Facebook, Google, investing big time in one of India’s largest Telecom player (Jio Platforms), which is also focused on maximizing digital inclusion across India, and the Government’s increased focus on Digital India, this dream doesn’t look too far off now for India!
Stay tuned for more on India’s digital payments story and much more. You can also comment in the box below or can reach me here.
References:
https://en.wikipedia.org/wiki/Classification_of_Indian_cities
https://inc42.com/buzz/aeps-outdoes-atms-digital-payments-during-covid-19-lockdown/
https://www.bloombergquint.com/economy-finance/offline-payments-the-next-big-push-for-digital-transactions
The CSR Journal
Express Computer
NASSCOM Insights
PWC Research
National Payments Corporation of India
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