FINANCIAL TRANSFORMATION IN INDIA

India has witnessed a profound financial transformation over the last decade,
marked by rapid digitalization across its economic landscape. This
transformation, driven by innovative government initiatives, robust
technological advancements, and widespread adoption of digital platforms,
has not only enhanced financial inclusion but also revolutionized the way
individuals and businesses engage with financial services.

The Genesis of Digital Financial Transformation

India’s journey toward digitalization began with reforms aimed at fostering
financial inclusion. The introduction of the Pradhan Mantri Jan Dhan
Yojana (2014) laid foundation by enabling millions to open zero-balance bank
accounts. PMJDY primarily helped in narrowing the rural-urban financial
access gap. This helped in narrowing the gap in access to the formal banking
system between rural and urban areas.
This coupled with the issuance of the Aaadhaar card, a biometric
identification system, which facilitated seamless access to financial services.
Around the same time demonetization, a government initiative that
motivated people to use cashless modes of payments and created a digital
environment around India. Therefore, demonetization has created many
inroads towards making India a cashless economy and promoting greater
financial transparency.

Simultaneously, the rapid penetration of smartphones and affordable Internet

access which was made possible through the introduction of new and cheap
Jio SIM cards, spurred the Digital India initiative. It created the
infrastructure necessary for financial digitalization.
The Transformation of the Indian Economy can be classified in various stages.
The Digital India initiative is stage two of the transformation process. The
Digital India program, which was launched in 2015, sought to harness the
power of digital technologies to convert India into a knowledgeable-based
economy. Financial inclusion was a major pillar of Digital India effort. Apart
from Reliance Jio, Paytm emerged as a vital participant in implementing
Digital India's vision by introducing digital payments and the most important
factor was that it allowed its users to store money and conduct cashless
transactions. This marked the beginning of the cashless ecosystem in the
country, heralding the introduction of the new era of Unified Payment
Interface (UPI).

UPI was launched in 2016 by the National Payments Corporation of India

(NPCI). It revolutionized real-time digital payments, enabling instant
transactions due to its simplicity and interoperability with a single app.
According to the official RBI Annual Report 2020-21, the number of UPI
users (in lakhs) saw a significant rise, starting at 53,915 in 2018-19,
increasing to 1,25,186 in 2019-20, and further growing to 2,23,307 in 2020-
21. Similarly, the value of the UPI transactions (in crores) surged from
8,76,971 in 2018-19, to 21,31,730 in 2019-20, and reached an impressive
41,03,658 in 2020-21.
Covid-19 intensified adoption of digital payments in every possible aspect of
transactions from placing demands, to delivery of goods and services, and
clearing payments. As we observe from the above statistics it's evident that
there is indefinite rise in the number and volume of transactions majorly due
to COVID-19. By 2024, UPI has emerged as the backbone of India’s digital
payments, handling billions of transactions monthly.
India has become a thriving hub of fintech innovation, with startups offering
diverse services such as peer-to-peer lending, neo-banking, and digital wallets.
These digital wallets as Paytm, PhonePe, Google Pay, and Amazon Pay have
integrated seamlessly and also has contributed significantly to the growth of
SME’s by expanding their customer base. There are 217 million mobile
wallet users in India is expected to reach 434 million in 2025. The mobile
wallet transaction volume in India is 25 billion and is expected to reach 71
billion by 2025. In, 2023 UPI transactions saw dramatic growth, with digital
wallet spending accounting for 56% of e-commerce value and 51% of POS
spending.
India's digital wallet market is dominated by three major players: Google
Pay, Paytm, and PhonePe, which initiate 95% of all UPI transactions.
Besides, the Indian Government has also implemented policies to promote
digital payments, such as Digital Payment Abhiyan and Digi Locker, which
provide a secure platform for strong financial and personal documents. The
market for mobile wallets has benefited from these favorable legislative
conditions.

India's journey toward financial digitalization holds transformative potential,

but significant challenges must be addressed to ensure inclusive progress. The
digital divide remains a critical issue, as a substantial portion of the rural
population lacks access to affordable smartphones and reliable internet
connectivity. This limitation excludes many from participating in the digital
financial ecosystem, further deepening socio-economic disparities.
Cybersecurity risks are another growing concern, with the surge in digital
transactions exposing vulnerabilities to hacking, phishing, and fraud, which
undermine trust in digital platforms. Additionally, digital literacy poses a
substantial hurdle, as many individuals, particularly in rural areas, lack the
skills needed to navigate online financial tools effectively, leaving them
hesitant and susceptible to exploitation. The challenges are compounded by
infrastructure gaps, particularly the lack of banking facilities such as ATMs
and point-of-sale systems in underserved areas, which restrict access to
essential financial services. As noted in a 2022 Reserve Bank of India (RBI)
report, ATM penetration in India remains low, with only 15 ATMs
available for every 100,000 people. Despite record-high cash circulation,
Indian banks are closing more ATMs. This trend is largely driven by the rise
of digital transactions and UPI payments. While cash still plays a significant
role in the economy, the number of ATMs, especially off-site machines, has
declined. Industry experts attribute this decline to bank consolidation and the
push for digitalization. As of the end of September 2024, India had 215,000
ATMs, down from 219,000 a year earlier, according to data from the
Reserve Bank of India.

To tackle the challenges in financial digitalization, India should adopt several

key strategies. First, it needs to improve internet access by forming
partnerships, promoting affordable smartphones, and increasing public Wi-Fi
in rural areas. Strengthening cybersecurity is crucial, which includes
enforcing strong security measures, raising awareness about online scams,
and establishing quick support systems for complaints. Improving digital
literacy should involve large training programs focused on marginalized
communities and incorporating financial education in schools. Upgrading
infrastructure, like rolling out 5G networks and mobile ATMs, is essential for
better rural connectivity. Additionally, encouraging fintech innovation
through incentives can help create solutions that meet various consumer
needs. By addressing these issues comprehensively, India can build an
inclusive digital financial system that benefits all citizens and enhances
economic stability.

India’s financial transformation and digitalization signify a significant shift

toward a more inclusive, efficient, and transparent economy. As the nation
increasingly adopts technology, it has the potential to close socio-economic
gaps, empower millions, and establish itself as a global leader in digital
financial services. By tackling challenges directly and nurturing a
collaborative ecosystem, India is poised to achieve a robust digital economy
that benefits everyone.