In bleak times for banks, India's digital-payments system wins praise

WHEN INDIA was hit both by the failure of a big bank and a nationwide lockdown in March, bankers, fearing runs from rattled depositors, rushed to stuff cash machines with notes. In fact the demand for cash was relatively subdued. Activity hummed along the Unified Payment Interface (UPI), an electronic-payments network that is on its way to becoming the country’s financial lifeline.

In the past two years three big banks or shadow banks have imploded. The severe economic disruption caused by covid-19 will only make lenders’ burden of bad loans heavier. Against this grim backdrop, UPI has shone. In November Google wrote to the Federal Reserve urging it to endorse a similar model for America. The Bank for International Settlements concluded in December that India’s digital financial infrastructure has the “potential to transform emerging markets and advanced economies alike”.

Before UPI was set up in 2016, cash reigned supreme. A large share of the population had no bank accounts, limiting card payments. Now hungry passers-by can pay for snacks like dosas and vada pav from street vendors using apps on their phones. At the start of 2020 nearly 1.3bn electronic payments were made each month, more than those using plastic. They accounted for 19% of banking transactions in the...