QR code payments take Indian economy by storm

You find it pasted on a tree next to a roadside barber, propped on the pile of embroidery sold by women weavers, sticking out of a mound of freshly roasted peanuts on a snack cart. A beachside performer in Mumbai places it on his donations can before beginning his robot act; a Delhi beggar flashes it through your car’s window when you plead that you have no cash.

The codes connect hundreds of millions of people in an instant payment system that has revolutionised Indian commerce. Billions of mobile app transactions — a volume dwarfing anything in the West — course each month through a homegrown digital network that has made business easier and brought large numbers of Indians into the formal economy.

The scan-and-pay system is one pillar of what the country’s prime minister, Narendra Modi, has championed as “digital public infrastructure,” with a foundation laid by the government. It has made daily life more convenient, expanded banking services like credit and savings to millions more Indians, and extended the reach of government programs and tax collection.

With this network, India has shown on a previously unseen scale how rapid technological innovation can have a leapfrog effect for developing nations, spurring economic growth even as physical infrastructure lags. It is a public-private model that India wants to export as it fashions itself as an incubator of ideas that can lift up the world’s poorer nations.

“Our digital payments ecosystem has been developed as a free public good,” Modi said last month to finance ministers from the Group of 20, which India is hosting this year. “This has radically transformed governance, financial inclusion and ease of living in India.”

In simple terms, Indian officials describe the digital infrastructure as a set of “rail tracks,” laid by the government, on top of which innovation can happen at low cost.

At its heart has been a robust campaign to deliver every citizen a unique identification number, called the Aadhaar. The initiative, begun in 2009 under Modi’s predecessor, Manmohan Singh, was pushed forward by Modi after overcoming years of legal challenges over privacy concerns.

The government says about 99 per cent of adults now have a biometric identification number, with more than 1.3 billion IDs issued in all.

Nandan Nilekani, a co-founder of the information technology giant Infosys who has been involved in India’s digital identification efforts since their early days, said the country could make a technological leap because it had little legacy digital infrastructure in place. “India was able to develop afresh with a clean slate,” he said.

The IDs ease the creation of bank accounts and are the foundation of the instant payment system, known as the Unified Payments Interface. The platform, an initiative of India’s central bank that is run by a nonprofit organization, offers services from hundreds of banks and dozens of mobile payment apps, with no transaction fees.

In January, about 8 billion transactions worth nearly $200 billion were carried out on the UPI, according to Dilip Asbe, the managing director of the National Payments Corp. of India, which oversees the platform.

The value of instant digital transactions in India last year was far more than in the United States, Britain, Germany and France. “Combine the four and multiply by four — it is more than that,” as one Indian Cabinet minister, Ashwini Vaishnaw, told the World Economic Forum in January.

The system has grown rapidly and is now used by close to 300 million individuals and 50 million merchants, Asbe said. Digital payments are being made for even the smallest of transactions, with nearly 50 per cent classified as small or micro payments: 10 cents for a cup of milk chai or $2 for a bag of fresh vegetables. That is a significant behavioural shift in what has long been a cash-driven economy.

One impetus for the move away from cash and toward digital payments was Modi’s 2016 decision to remove all large-denomination currency from the market. Promoted as an effort to eradicate black money in politics, the shock devastated small businesses that ran on cash.

Reliance on the digital infrastructure deepened during the pandemic, as the government used the ID numbers to manage the world’s largest vaccination drive and deliver financial aid.

As the system has become embedded in Indian life, the concerns over data privacy have not fully receded, even after Supreme Court rulings governing its use. Some worry that the sharp erosion of checks on government power under the rule of Modi could open the door to abuses of the central identity database. With India pushing its model abroad, including in countries lacking strong legal safeguards, these concerns will follow.

Amitabh Kant, one of India’s top coordinators for the Group of 20 events, said the government had struck the right balance between privacy and innovation. “We said that the data belongs to the individual and that he has the right to give consent for every transaction that he undertakes,” he said.

This article originally appeared in The New York Times