The volume of digital transactions through all modes (UPI, IMPS, NEFT, etc.) fell during March & April 2020, the initial months of the lockdown. However, digital transactions recovered strongly during the later months and continued the increasing trend. Unlike digital transactions, the ‘Currency in Circulation’ witnessed an increasing trend throughout 2020.
In an earlier story, we had observed the increase in Currency Circulation during and post COVID-19 induced lockdown in the country. Lockdown and social distancing measures prevent people from venturing out to carry out various transactions. Hence, it is estimated that people would have preferred using digital platforms to carry out various transactions instead of cash. However, we found that ‘Currency in Circulation’ increased by over 22% in 2020.
What about digital transactions then?
One of the key purposes of demonetization, as stated by the government was to build a less-cash society and encourage people to use digital platforms. In an earlier story, it was observed that there is a substantial increase in the volume of digital transactions over the years. It was also observed that due to lockdown, there was a fall in the digital transactions during April 2020. Did these trends continue or was there a change post-April 2020? Have digital transactions increase on par with currency circulation? We look at the trends in the volume & value of digital transactions in this story.
75% increase in the volume of UPI transactions in 2020 compared to previous year
As per the information available on the National Payments Corporation of India (NPCI) website, more than 1880 crore UPI transactions were made in the year 2020 which is 75% more than the 1079 crore UPI transactions in 2019. While the rate of growth in 2020 was less than the previous years, it could be because of the low base effect in the previous years. During 2018, the volume of UPI transactions grew by nearly 9 times while in 2019, the transactions grew by nearly 3 times compared to 2018.
In terms of the value of the UPI transactions, Rs. 33.87 lakh crores worth of transactions were made in 2020. This is around 85% more than the value of the transactions in 2019. The per transaction value has also increased in 2020 in line with the trend of previous years. The average per transaction value in 2020 is Rs. 1794, more than Rs. 1702 in 2019. This shows that people are increasingly using UPI for high-value transactions also.
Despite a fall in March & April 2020, volume of UPI transactions has increased
A consistent increasing trend was observed both in the volume & value of UPI transactions since 2017. This increasing trend was broken in March 2020, when both the volume & value of the UPI transactions were less than February’2020. These fell further in April 2020. This was the initial period of lockdown, and the same was highlighted in an earlier story. The trend was reversed in May 2020 and since then, there has again been a consistent increase in both the volume & value of UPI transactions. The fall in these two months was compensated by the spurt of increase in later months, evident from the higher annual figures reported earlier in this story. Further, it has to be noted that even though there was a decline in March & April 2020, the UPI transactions during these months are still higher than the transactions during the same months in 2019.
After a fall during lockdown, IMPS transactions recovered in the latter part of 2020
A total of around 297 crore IMPS transactions were made during 2020 with a value of around Rs. 26.83 lakh crores, as per the information available on the NPCI website. This is an increase compared to the IMPS transactions in 2019.
The Year-on-Year (YoY) increase is not a reflection of the varying trend observed during 2020. As was the case with UPI, the trend of a monthly increase in the IMPS transactions observed in recent years was broken in February 2020. The number of transactions further declined in the ensuing two months of March & April 2020. Like in the case of UPI, May 2020 marked the reversal of this decreasing trend. However, it was only in September 2020 that the volume of IMPS transactions reached the pre-lockdown levels.
The growth in the IMPS transactions has been higher in the latter months of 2020, making up for the decreased transactions earlier in the year and contributing to an overall higher annual volume and value of IMPS transactions compared to 2019. December 2020 recorded the greatest IMPS transactions both in terms of volume and value.
Highest volume of NEFT transactions recorded in last quarter of 2020, following a fall during lockdown
As per the information provided by RBI, around 294.63 crore NEFT transactions with a value of Rs. 238.49 lakh crores were made in 2020 while in 2019, a total of 262.17 crore NEFT transactions worth Rs.232.96 crores were made.
Compared to UPI and IMPS transactions, the growth of NEFT transactions in 2020 has been less prominent. Trends over the last year indicate that the NEFT transactions had a fluctuating trajectory, unlike IMPS & UPI transactions. Post the lockdown, there was a fall in NEFT transactions in April 2020, the least during the two-year period of 2019 & 2020. Although the recovery began from May’2020, it has been slow and it was only during the last quarter of 2020 that the NEFT transactions reached pre-lockdown levels, with the last three months recording the highest volume of transactions.
Unlike currency in circulation, Digital transactions fell during lockdown only to recover later.
As already highlighted in the story, digital transactions through various modes i.e., UPI, IMPS & NEFT have recorded stronger growth during the latter half of 2020 i.e., post the lockdown. However, unlike Currency in Circulation (CiC), which recorded a growth even during the lockdown, the transactions across all digital modes fell during the lockdown period.
Significantly fewer digital transactions during the lockdown could be a reflection of the lower levels of economic activity during the lockdown period, meaning fewer transactions. This could also reflect the disinclination to spend during the uncertainty because of the pandemic. On the other hand, the increase in CiC could be reflective of the apprehensions among the public and holding onto cash as a safe backup.
The increase in the volume and value of digital transactions post the lockdown point towards an increase in the preference for digital transactions. The growth in digital transactions in-spite of a contracting economy points towards a change in preference rather than a corresponding increase in economic activity.