India has firmly established itself as a global leader with the digitalisation of its financial sector, according to the latest report by the Reserve Bank of India (RBI).
The RBI report highlights that India is leading the way when it comes to real-time payments, boasting a share of 48.5 per cent of the global real-time payments volume.
It also estimates that global remittances increased to around $857.3billion in 2023, led by India with $115.3billion (equating to around 13.4 per cent). Meanwhile, Mexico ($66.2billion), China ($49.5billion) and
the Philippines ($39.1billion) trailed significantly behind. RBI also notes that India emerged as one of the top recipients of fintech funding in recent years, with $2.6billion of flows in 2023.
So how has India achieved this? RBI attributes this to two ‘key fundamental drivers’: high connectivity through mobile and internet-connected devices and access to low-cost computing and data storage.
India is home to the second largest telecom subscriber base and internet user base globally. The growth in digital enablers has been powered by competitive offerings by telecom operators, global tech giants and some of the cheapest data prices in the world.
India’s instant payment system, Unified Payments Interface (UPI), has seen a tenfold increase in volume over the past four years, increasing from 12.5 billion transactions in 2019 to 131 billion transactions in 2023 – 80 per cent of all digital payment volumes. The UPI is currently recording just shy of 14 billion transactions a month, with 424 million unique users in June 2024.
RBI also explores how digitalisation is helping to enhance financial inclusion; tackle gender, economic and social inequalities; channel formal finance to agriculture; enhance cross-border transactions; and support climate finance and sustainability. It revealed that it saw an increase in bank account ownership from 61 per cent of the adult population in 2014 to 74 per cent in 2021.
Identifying challenges
While the benefits of increasing digitalisation are clear, the RBI has also admitted various challenges. It notes that regulators need to stay ahead of the financial innovation curve while balancing the complex trade-offs related to financial stability, competition and customer protection.
The report outlines that achieving this “will require enhancing the capacity of regulated entities and oversight authorities, updating legal and regulatory frameworks, engaging stakeholders to identify risks and
expanding consumer education”.
It also recognises that the increased use of AI algorithms also introduces new regulatory challenges. It references a lack of explainability, potential discriminatory biases, false signals and substantial investment requirements to integrate with legacy systems – all new factors must now be considered.
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