NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, January 4, 2017

With the government push for cashless transactions, after the demonetization of high-value currency notes, the electronic payments data released by the Reserve Bank of India presents an encouraging shift towards digital payments. The adoption of non-tradition digital payment mechanisms, i.e., payments made using Unstructured Supplementary Service Data (USSD) for mobile communications, Unified Payment Interface (UPI) and e-wallets is evident from the growth in volume of transactions and their value, albeit on a low base.

While the overall value of electronic transactions in December, over November, saw a growth of only 10.7%, the volume of transactions has swelled about 40%, indicating a jump in low-value transactions. At the same time, USSD and UPI transactions saw the volume and the value of transactions grow manifold (see table). But data often hides another story. “The growth is largely due to the low base. Having said that, the main reason for the current growth is the overall digital push that is coming through. There are still a lot of people who use feature phones. For some people, even if they use smartphones, the subset of people having continuous access to data is smaller,” said Vivek Belgavi, fintech leader at PwC India, a consulting firm. In either case, USSD becomes the favoured mode of transaction, he said.

That mobile payment systems will be instrumental in the digital shift, is evident from the more than 1 million downloads for the Bharat Interface for Money (BHIM) app. It is a platform that connects 31 major banks using UPI. If you are looking to adopt the new modes of digital payment, here are a few things you should know.

WHAT IS USSD?

In India there are many barriers to adopting mobile banking apps, such as: low smartphone ownership, high data charges and patchy internet network availability. Even among those who own smartphones, many just don’t feel comfortable using these apps. USSD-based services let you do mobile banking without having to download any app on the phone, and these can be used equally well from smartphones as well as basic feature phones, which cannot access mobile data.