Digital payments are a form of checks: instructions to pay money from your account. That money eventually is represented by physical cash printed by a central bank — it may be digitally represented in your account, but there is a store of that physical money somewhere to back it up.

This is not true any longer. When I receive my Social Security pittance in my bank account it represents newly created money without any physical presence beyond some numbers changed by keystrokes between Treasury, the Fed, and my bank. I can watch it change by refreshing my link with my bank account as it does so. There is no "paper" money involved.

Paper notes are something the banks use to satisfy consumer demand for them and to allow those who are unbanked to use the system. The quantity in circulation is very seasonal, fluctuating with the spending habits of consumers. Banks simply order them from the Fed and Treasury supplies them while adjusting the digital records of reserves to account for them. Paper and coins account for only about 8-12% of the total money supply currently, depending on the season.

Digital reserves are created by banks when they make loans. This is necessary to facilitate interbank transfers, but they "cost" the lending bank the Fed's base overnight rate if the bank gets out of balance between reserves and aggregate loan principle. As that aggregate principle is paid off/retired the digital reserves go back into thin air where they came from. Paying off a bank loan decreases the total money supply.