GRC Viewpoint

RBI Paper Emphasizes Importance of Cybersecurity and Customer Safeguards in Driving Digital Payments Momentum

The Reserve Bank of India’s recent paper underscored the significance of cybersecurity, customer protection, and cost efficiency in sustaining the surge in digital payments catalyzed by the COVID-19 pandemic. Titled ‘Cash versus Digital Payment Transactions in India: Decoding the Currency Demand Paradox’, it highlighted a shift away from cash transactions toward digital modes, despite cash retaining its role as a store of value.

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During the pandemic, there was a temporary rise in currency demand in India, driven by precautionary motives and the desire to preserve value. To maintain the impetus towards digital payments initiated by the pandemic, the paper stressed the need for concerted efforts. These include ensuring cost-effective payment methods and building robust acceptance infrastructure, addressing consumer and merchant needs. Access to essentials like smartphones and internet connectivity was also identified as crucial. Authored by Sakshi Awasthy, Rekha Misra, and Sarat Dhal from RBI’s Department of Economic and Policy Research (DEPR), the paper emphasized the necessity of bolstering financial inclusion and literacy, along with safeguarding cybersecurity and customer protection.

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Despite the rise in digital payments, the prevalence of cash persists due to the population’s strong inclination toward cash transactions and savings. Cash plays a pivotal role in facilitating transactions between formal and informal sectors, serving financially excluded populations lacking digital awareness. The paper also noted that digital payment usage remains concentrated in regions with higher development levels. It highlighted that the success of digitalisation goes beyond substituting cash and has broader implications for economic growth, financial market development, household financial well-being, and effective governance.

Despite the surge in cash usage during the pandemic, the paper suggested that this might not translate into a permanent shift. The ongoing expansion of digital payments, coupled with the slowdown in post-pandemic cash demand growth, indicates a potential divergence from high cash usage observed during the crisis.

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