When Y V Reddy took over as the Governor of the Reserve Bank of in 2003, by his own admission, he didn’t bring with him the experience of a banker. But a career bureaucrat that he was, he understood the plight of the crores of citizens without any access to formal institutional finance.

By his own admission, when he started reviewing the Indian banking scenario from a customer point of view he realised that there were three things that needed to be taken into account.

A) Ensuring that the depositors money is safe

B) Ensuring an easy and affordable remittance mechanism that required using of appropriate technology.

C) A KYC structure that through periodic monitoring would screen out fraudulent and other illegal transactions.

This was the genesis of the famous financial inclusion proposition articulated in his 2005 monetary policy and set the stage for digital banking.

The now obvious but then scarcely perceived benefit of digital banking was to get around the problem of physical interface between a bank and its customers for transactions. In the rural areas where cash based transactions rule, for a rural labour to approach a bank means sacrificing a day’s earning which is a huge cost to him. Technology based banking reach-out would help cut this cost out.

The frowning of sceptics notwithstanding the digital banking is fast taking root as the affordable internet based mobile connectivity has started penetrating even the remotest of villages in the country.

The main issue here is the ease of transaction on a properly designed digital transaction vis-a-vis the cost of cash based transactions to the system. Cash – be it coin or notes – needs to be guarded against counterfeiting. That itself is expensive. While one can check notes for their veracity, it’s difficult to ensure the same for coins although adequate safeguards exist to deter the fraudsters or attempts to melt them to use the metals for other purpose. Also machines to check the notes in the villages are not easily available. All of us know what we are talking about here. There is also the issue of banks’ refusal to accept coin deposits mainly because of the claimed inconvenience of storing.

On the other hand, digital transaction based on IMPS is instantaneous and convenient for low value transactions and just needs the phone number of the payee.

Expectedly, the entire experience wasn’t encouraging. The app was evolving and affordable mobile internet network penetration was just taking shape.

Going by the RBI data, digital transactions reached a record high of 1.11 billion in January, 2018, up 4.73 per cent from the 1.06 billion in December last year. Total transaction value surged to Rs131.95 trillion compared to Rs125.51 trillion in December, 2017.

UPI enabled transactions crossed 151.7 million mark in January compared to 145.5 million in December, 2017 – a surge of 4 per cent. But the increase in value for the same period has been a mind blowing 18 per cent to Rs155.4 billion.

Over the entire 2017, UPI based transactions grew by a massive 7000 per cent.

This has happened, as I argued, mainly because of affordable mobile internet network penetrating deeper and deeper into the rural India. The higher the spread greater would be the impact of financial inclusion that would in turn benefit the economy enormously.