The Hindu, 25th December, 2016
The epic event of demonetisation which India is going through at this moment, while on one hand has caught the world attention, on the other has accelerated the wide spread acceptance of digital payments in India. Can India become a truly ‘cashless society’?
Payment Digitization disruption is the top news churner in the past one month. However this journey from cash to ‘less cash’ has only just begun and is its in infancy stage. Financial Technology innovations are revolutionising all six major functions of financial services – Deposits & Lending, Capital raising, Investment management, Insurance, Market provisioning and Payments. As per recent World Economic Forum, there are 11 areas in which innovations are threatening to disrupt and change, both the traditional institutions which provide these services and customers habits who consume these services – including Person to Person (P2P) lending in Deposits & Lending, Crowd funding for capital raising in financial institution, use of advanced algorithms for Investment management emerging payment rails such as crypto currency & mobile banking, and, mobile digital payments in the Cashless world.
Last week, our finance minister announced a slew of measures to encourage digital and mobile payments, exactly a month after its decision to scrap high-value banknotes, signaling its intent to take digital payments adoption to the next level. Parallel to this, Government has set into motion high decibel advertising educating and cajoling citizens to jump into this ‘less cash’ bandwagon. To add to this is the creation of a new help line number – ‘14444’, to be made operational soon followed by a new TV channel, ‘DigiShala’, to be available on Doordarshan’s DTH platform, and, a web portal “CashlessIndia” to promote digital payments.
As per a recent announcement by the federal government Digital payments soar by up to 300% after demonetization. According to this announcement , the number of daily transactions through e-wallet services has shot up from 17 lakh — recorded on November 8 when demonetization was announced — to 63 lakh as on December 7 (a growth of 271%). In terms of value, the surge has been 267%, from Rs 52 crore daily to Rs 191 crore now. Transactions through RuPay Cards (e-commerce and point-of-sale) were up 316% at 16 lakh daily (3.85 lakh on November 8), while in terms of value the growth has been 503% at Rs 236 crore (Rs 39 crore).
We anticipate this strong show of adoption and usage to continue till the time the cash availability through various other banking channels ease out. In the meantime incentives like the one announced by the Finance Minister and Niti Aayog will encourage more and more people to use the cashless mode and continue support to digital payments. As various forces play out forcing merchants to accept all forms of digital payments, Telcos are happy, witnessing increased demand for data. Connectivity is one basic requirement for using cashless mediums like mobile wallets, UPI and other mobile Apps. The doubling of the USSD mode of payments suggest effectiveness of promotion campaign of its usage unleashed recently by Government.
The consumer and the merchants, both sides of the payment ecosystem today have multiple technology options to adopt digital payments, form age old card networks and banks on one side, to the new age technologies such as the mobile wallets and UPI. While traditional cards and net-banking have existed for a long time, it is the new age methods which are making a splash after Demonetization – and mobile wallets have become the crown jewel in the process. According to wallet companies the current estimated digital payments of approx. $70 billion is expected to increase by 5 times in the next 3 years. Wallets being a very convenient mode of cashless payments are currently spreading at a breakneck speed, with increasing acceptance at various kind of retail outlets – i.e. highways tolls, gas bunks, sundry merchants, and other essential service points. The reason why wallets stole a march over other mediums is the easy adoptability, onboarding and no upfront cost with added incentives such as ‘cash backs’ and bonus schemes. RBI with policy tweaking has also relaxed the merchant onboarding guidelines to give a fillip to it.
Visa Corporation in its recent report pegged cost of cash at 1.7% of India’s GDP. It estimated that even a 0.4 percentage point reduction in this proportion over the next five years could lead to savings of Rs.4.7 trillion. Government is clearly anticipating the private sector to follow suit and announce incentives for adopting digital mode of payments leading to wider adoption. The world of digital payments and cashless world is moving at break-neck speed. In India, over 50 million transactions amounting to Rs.2200 crores across over 200 million mobile wallets are believed to have taken place in just one month post demonetisation announcement on November 8th.
As RBI & Government unleash the next level of regulation (read as de-regulation) , the technology companies have stayed a step ahead in bringing the razor edge of tech consisting of automation, advanced machine learning and analytics to the world of banking and financial services. What we have seen is just the tip of the iceberg as technology lead disruptive innovations reshape financial services – how they get structured, provisioned and consumed.
India emerging a ‘cashless nation’ still appears a distant dream, however there is no stopping in this ‘less cash’ journey. A lot still has to happen, but surely and steadily this journey is afoot.