New Delhi: The Modi government has set digital payment target for 2018-19 nearly 50% higher than what was actually achieved the previous year, enthusiastically pushing its agenda for a cashless economy.

According to people with knowledge of the matter, the government has asked the country’s banks and payment companies to boost the volume of digital transactions to 30 billion in the current fiscal year, from 20.3 billion in 2017-18.

Digital transactions include those conducted via credit and debit cards, unified payments interface (UPI), unstructured supplementary service data (USSD), prepaid payment instruments (PPIs) and internet banking.

Significantly, despite the recent cash shortage, and that the use of physical currency still remains high in other developed economies such as Germany and Japan, the Modi government continues to pursue its ambitious digital transaction target.

Cash still remains king in Germany, Europe’s most advanced economy, accounting for nearly 80% of point-of-sale transactions. On an average, Germans keep more than 100 euros in their purse or wallet, according to a recent study by the European Central Bank (ECB).

According to the ECB study, shoppers in Malta and Greece too prefer to pay for goods in cash. As much as 92% of transactions in Malta, and 88% in Greece are made using cash, found the report. Cheques, which have been largely phased in some countries, are still a common means of payment in Belgium, Ireland and France, the report said. Outside the euro area, Japan is closer to Germany in its disdain for digital payments, with the equivalent of more than $7,000 in banknotes and coins in circulation for every Japanese.

Even in the US, the land of Google, Amazon, Facebook and Twitter, cash still remains a popular means of transactions. A little less than half of US payments, with a bias toward smaller transactions, are made in cash, researchers from several central banks estimated in 2016.

Canada, which ranks at 19 globally in terms of per capita income, is interestingly the most cashless country. Luxembourg, Switzerland and Norway, three richest countries, do not figure among world’s ten most cashless economies, according to a study done by Forex Bonuses last year.

Canada topped the table as its citizens have more than two credit cards per person, and the majority (57%) of payments are made using cashless methods. However, it had the lowest number of debit cards per capita of all countries included in the research, and only 26% of its debit cards have contactless functionality. Contactless transactions are made for relative small value and do not require signature or PIN.

Coming back to the digital transaction target set by India for 2018-19, the banking sector alone is expected to achieve 23.7 billion online payments.

The ministry of electronics and information technology (MeitY) has set a target of 23.7 billion transactions to be recorded by the banking sector alone. Mobile wallet companies are expected to chip in with the rest of the 6.3 billion transactions, according to a recent Economic Times story.

Individual targets have been set based on the reach, size and customer base of the institution. “The ambitious target has been set even though the country has fallen short of last year’s target by 18%, having clocked 20.3 billion transactions only,” the report said.

The government had set digital transaction target of 25 billion for 2017-18. Against that, only 20.3 billion transactions were done online, leaving a shortfall of 47.7%.

Also, banks that acquire merchants for digital payments have been given a target to deploy a total of 20 lakh point-of-sale (terminals). The government has also set separate targets for mobile wallet companies, the Economic Times story said.

Public sector banks lagging behind in digital push

The main drivers of digital payment adoption in the country are the new-age private banks like Yes Bank, IndusInd Bank, Kotak Mahindra Bank and RBL Bank, which have all exceeded goals set in the previous year.

But public sector lenders have lagged behind, with some achieving just a fifth of their respective target.

According to data from the Reserve Bank of India, the number of payment terminals doubled to three million from around 1.5 million before November 2016, when the government pulled back large value currency notes from the system. The target of the government is to have five million payment terminals by the end of this year.

According to banking industry sources, digital transactions are still restricted to urban areas mostly and are used for person-to-person payments, while small value retail transactions are yet to pick up significantly.

The Modi government scrapped currency notes in November 2016 in a bid to unearth black money and push the country towards a cashless economy.

However, after a sudden spike in digital transactions in the aftermath of the note ban, debit and credit usage started falling. Debit and credit card transactions stood at 311 million in December 2016 but fell to 265.5 million in January, registering a decline of nearly 17%.

Again, digital transactions fell in February this year from the previous month in terms of both value and volume, showed provisional data from the RBI.

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