The complexity of payments in rural India

India, a developing nation, is a country of 1.39 billion (139 core) people. Out of which, about 65 percent of the population lives in rural India, and 35 percent lives in urban India. The urban centers contribute around 63 percent to the GDP, while around 27 percent contribution comes from the rural economy. The rural population has a significant part to play in the economic development of the country.

The rural areas are underdeveloped with no modern education of the age, and still not vary of the digitalization. With a major 65 percent residing in the rural areas, there is a huge potential lying in there, and which can lead India to achieve its vision of a $5 trillion economy by 2024-25. There is a huge gap that needs to be filled, which I call the “Digital Literacy Gap”. The Government started initiatives like Digital India in 2015 intending to fill this gap and make India a digitally-empowered society.

In 2020, India had a Digital Economy of $85-90 Billion, which is expected to become an $800 billion economy by 2030. There was a successful shift to digital payments and the use of digital services in the urban areas, after the demonetization. But, the primary mode of transactions in rural India is still cash. Lack of digital literacy is one of the reasons. And, to achieve an $800 billion digital economy, a better focus on the rural centers is a need.

Digital transactions play a pivotal role in strengthening the digital economy of a country. According to a study by the Internet and Mobile Association of India (IMAI), around 16 percent of the rural users access the internet for digital transactions, as compared to nearly 45 percent of the urban users. With better internet facilities and digital infrastructure, immense growth was seen in the number of digital transactions across India. However, this was not the case in the rural parts of India, where 65 percent of the population resides. The growth of the rural parts of the country will play a major role for Digital and AtmaNirbhar Bharat to come alive.

The revolution towards the transformation to Digital India has already begun. But, there are some reasons why it has not taken place in the hinterlands of India.

The Trust Factor

The people of the rural parts find it difficult to show trust on the Internet. As these are technologically challenged people, they do not even try to know about it and use it. They can't understand why giving away their bank details to someone else on the internet is useful, and they can not build trust about it. They have safety concerns and feel that everything related to banking and money has to be conservative, for security purposes.

The increasing cyber-attacks and bank frauds that take place are a de-motivator for the rural people to use digital payment solutions. People can not trust someone else with their hard-earned money. Working on the constant security of digital payments and spreading awareness about common fraud practices and how to avoid them can enable a shift towards acceptance of digital payments and generate trust.

With the advent of Jio, the internet got cheaper and better. Low-budget smartphones took the lower-middle-class and the rural societies by storm. These services reached the hands of the common man of India. But, it was of no use, as they were not capable of understanding the services and their uses.

Only 38 percent of the households in India are digitally literate. Rural societies are willing to shift to online payment means. But, lack of digital literacy hinders it. To overcome this problem, the National Digital Literacy Mission was started to digitally empower rural societies. The government and the private companies have also started several digital education programs for the rural people, wherein they are taught about various digital devices like smartphones, the basics of the internet, how to connect banks online, and how to pay by transacting online.

People should be made aware of the benefits of online payment methods like convenience, time-saving, trackable, recorded transactions, and security. The rural localities should be educated on various forefronts like the financial services available and how to use the basic digital payment solutions like UPI (Unified Payment Interface) for their day-to-day transactions. The Government and the private companies are already running various educational campaigns and training programs to promote Digital Literacy in the hinterlands of India, which will result in a fruitful outcome in years to come.

For people in rural areas, cash transactions are the simplest way of payment. According to a report by Credit Suisse, 72 percent of India’s consumer transactions take place in cash. Cash transactions are still the primary mode of transactions in rural areas. It is transparent for both the giver and the receiver. There are no hidden charges associated with these payments. Whereas, the online services charge a certain minimal amount for every transaction, which the rural people refrain from paying, and choose the cheaper transaction method instead, i.e., hand-drawn cash.

Moreover, there is no proper banking infrastructure like banks and ATMs. There are also no merchant card machines at the local shops, considering their high costs. Although digital payment and QR code technology is in place, the local merchants do not shift to these payment methods, which further makes the transactions cash-driven. Lack of digital literacy is the main reason why the rural pockets of the country still prefer cash.

The Government should provide lucrative incentives for the rural hinterlands of India to go digital. People visit the kiosks to pay for their electricity and water bills. They do not choose online payment services due to the overhead cost attached to them. The Government can promote a free all-in-one alternative payment platform for such utility bills and other consumer-to-government services. This will promote the rural people to come on board the digital payment train.

A robust digital infrastructure is a basic requirement in the current scenario. The educational campaigns result in positive outcomes. Digital Literacy is spreading in the rural parts of India, person to person. But, without a proper infrastructure in place, people in the rural parts still depend on cash-based transactions for almost everything. For example - The local shops in the rural areas are not equipped with a digital mode of payment, like the card machines called PoS terminals.

After the National Payments Corporation of India (NPCI) launched the RuPay card to promote a unified way of online payments, credit and debit cards started becoming substantially accessible to the rural population. But, due to the lack of adequate digital infrastructure, it was of no use for the people of the rural areas. There are hardly any PoS terminals found in the shops in rural areas. With over a billion debit and credit cards in the country, there are only around 50 lakh PoS terminals available. This massive difference in the numbers is due to the cost of acquisition of the PoS terminals, which is considerably high for local merchants of the rural areas.

However, the post-demonetization period witnessed reasonable growth in the number of rural users using PoS and digital payment interfaces.

India is the second-largest online market after China, with over 600 million internet users. This is the figure when the internet penetration is only about 45%. Onboarding the rural areas on the digital forefront will contribute tremendously to the digital economy of India. It will also result in the financial empowerment of men and women from the remote areas of the country, which will eventually contribute to the country’s Gross Domestic Product (GDP). This will help bridge the rural-urban digital divide.

With an increase in the digital literacy rate across rural India, and with higher adoption of internet and online payment services, it won’t be wrong to say that rural India will drive the digital economy in the forthcoming years.