India’s digital payment systems have gained a lot of success, and rightly so. The volume, value and variety of digital payment systems have all grown dizzyingly over the past decade.
Yet money is far from beaten and, in fact, still plays a valuable role, especially in the informal sector and in the rural economy.
A significant amount of cash injections into the rural economy come from direct government benefit transfers and domestic remittances. But only a third of bank branches are rural, and ATMs often run dry even when present. According to the latest RBI annual report, this cash shortfall is managed by nearly 18 lakh business correspondents or BCAs, a large portion of which are under contract with private sector banks.
BCAs use the Aadhaar, or AePS, enabled payment system on so-called micro-ATMs, online devices connected to banking systems, to allow customers to withdraw cash, simply using their Aadhaar number linked to their bank account and a fingerprint as authorization.
But the economics of the crucial mechanism for providing liquidity in remote rural areas works against those who provide the service – the public sector banks.
The sense of scale can be important in understanding the problem.
In June 2022, NPCI-run AePS recorded 45 crore transactions worth Rs 31,373 crore, an average of Rs 700 per transaction. Most cash withdrawals on AePS are funds received digitally by Pradhan Mantri Jan Dhan Yojana rural account holders from direct transfers of social benefits or remittances from domestic migrants.
The majority of AePS transactions are “off-us” transactions, which means that a customer of one bank uses the infrastructure of another bank to complete it.