A Cashless Effort – Advancing Our Payments Landscape

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According to RBI data, the first week of December saw digital transactions amounting to ₹60 crore done on the top 8 mobile wallets alone.

November was a sensational month in more ways than one. For one, the world got Trump as the president elect of the USA and India made regional headlines around the same time by driving the ₹500 and ₹1,000 currency notes to extinction. Speaking of which we are also driving initiatives at being a cashless economy.

Now that both events are done with nothing to be done about them, let us turn our focus to the aftermath and prospects that this offers. While there is not much we can do to influence the prospects of Trumps time as president, we can do much more regarding the changing payments landscape in India.

Here are the facts:

1– Transacting in cash is now a very difficult situation.
2– Our Payments landscape demands new solutions.

Demonetization-  is a word that’s been splashed around the country since November 8, Perhaps one time too many. But it is hard to ignore the shift this monetary policy has made to our payments ecosystem. We’ve taken a paradigm shift towards going cashless, almost overnight and the demonetization move has been the primary reason behind this, like it or not.

Digital and financial inclusion, have been a top priority for the government of India. Earlier this year Jan-dhan (Financial inclusion) took a big leap when more than 200 million bank accounts were opened which were aimed at reducing the un-banked population of India.

There is a lot of talk around how the latest monetary policy by the government has been a disaster and the efforts to digitalize a country where internet penetration in rural areas is <10% is ludicrous.

It would be surprising if there was no anger on the part of the masses, after all, the inconvenience that this has caused is appalling. So far the argument has been around what this move would do to black money and corruption. Now while the contentious continue to debate on the multi-faceted nature of the demon that’s been unleashed, let us look at another, completely different, aspect about this monetary measure.

D for Digit-All

The one thing that this move has surely accomplished is that it has forced the nation to adopt a digital outlook to payments. Much to the surprise of all, the move worked. There was a sudden surge in the economy’s digital signature post November 8th.

Invalidating such large sums of money have left our nation wanting. A disastrous situation of financial want that had just only one solution – to go digital. It’s not like there was no money available in the economy. The complication lay in being able to access that money.

For a long time, access to money, implied being able to hold money in your hand, but the digital revolution changed all that. Now all of a sudden there was the ‘smart cash’; cash that you didn’t need to carry around to buy stuff. This changed the way we perceived transactions and the payments ecosystem forever.

Technology continued to make these alternatives to cash better and safer.  The first to enter the market were debit and credit cards issued by banks.  However even today, majority of debit card holders continue to use this merely as a cash withdrawal mechanism instead of exploiting the full potential that these cards offer.

Credit card penetration is low in India, debit card usage is merely at the ATMs, internet banking activation is rare and internet penetration in rural areas is less than 10%.

Going Cashless

So what does it take for an economy to go cashless? While there is no textbook definition or steps involved to create a cashless economy, there are certain elemental characteristics displayed by all advanced economies. Let’s look at the 3 elements that will play a major role in India going cashless.

  • Technology
  • Internet Penetration
  • Incentive

Technology

The foundation to a cashless economy is to have the technology that will facilitate cashless transactions. Over the past couple of years our cashless payments technology has seen robust growth. From online wallets such as Paytm, airtel money to bank enabled internet banking, IMPS and the more recent UPI (Unified Payments Interface), technology has been shaping our payments ecosystem.

Almost all the banks issue a debit card for every account, which have promoted the growth of cashless transactions. Credit cards are a different story, as not many people qualify for a credit card. The recent introduction of the UPI has changed the face of money transfers. The earlier system of having to register payee on the banking platform, waiting before initial transfer can be done and restrictions on the transfer limit for the first 24 hours have been done away with. UPI allows for instant, direct and hassle free transfer of up to ₹1,00,000/- per transaction with anyone who has a registered UPI. (daily limit as set by your bank).

Internet Penetration

The next big assist to going cashless is the availability of affordable wireless internet. Now this is where we feel the pinch but to put things into perspective, mobile devices account for 72% of all website traffic in India. This is no minor figure, what this means is that the bulk of India’s internet users access the internet from their mobile phones. This is good news because it goes to show that the nation is already on this platform which will enable cashless transactions.

The growth of wireless internet is surprisingly at its highest in rural parts of India.

Internet Subs Comparison

Sadly the internet penetration of rural areas is still an appalling <10%. THIS needs to improve before we can think about scaling a cashless economy. Without denying the facts, it is also important to note that the growth of wireless internet is surprisingly at its highest in the rural parts of India. Urban areas have on an average recorded negative growth in mobile  internet.

Telecom Subs Trend

This is positive news for the economy because it implies that a shift to a cashless economy will be better received by rural areas. Perhaps what we really need as a part of ‘Make in India‘ are initiatives that can be aimed at bringing internet connectivity to remote part of India.

Incentive

Everyone is comfortable using cash for transacting. There is no real impetus to going cashless, passiveness is at the heart of all things convenient. But last month, something happened or a chain of events happened rather, that changed the way we viewed online payments.

The disappearance of ₹500 and ₹1,000 notes in themselves did less damage that the widespread unavailability of hard cash. All of a sudden there was an incentive to try out online payments – there was no other option. Necessity  is the mother of all inventions.

Two of the largest circulating denominations were no longer valid tenders for exchange of goods and services. The ₹100 denomination currencies were in short supply; everyone had money sitting in the bank account or in their wardrobes. Of the two, that sitting in the bank seemed to hold absolute power.

It was not like there was no way you could use your money in the market- you just had a tough time waiting at the ATM. The platforms for cashless transactions have been floating around for sometime now. The draining of the old currencies gave a chance for these payment wallets to surface.

Tremendous Growth in m-Wallets

In the weeks post November 8th, online payment companies (digital wallets) have recorded growth never before seen. According to RBI data, the first week of December saw digital transaction amounting to ₹60 crore (around 25 lakh transactions) done on the top 8 mobile wallets alone.

Paytm the country’s leading digital wallets company claims that it is witness to 50 lakh transactions that amount to ₹100 crore on a daily basis. In an economic times article, the company also said that it has added over 5 million new users since the demonetization initiative. These are the stats for just Paytm, all the other mobile wallets have registered such disproportionate growth as well.

Oxigen services – transactions on their platform have increased from ₹450 crore to ₹600 crore.
Freecharge – Saw a growth of 9 times in merchant transactions.
MobiKwik – transaction volumes increase by 18 times.

A study done by ASSOCHAM points out that the mobile wallet market in India will see a compounded annual growth rate of 141% to reach ₹30,000 crore by 2022. The same report also anticipates that the market value of m-wallet transactions will reach ₹55,00,000 crore by 2022 from just ₹20,600 crore in 2016. That is a compounded annual growth rate of 154%.

Paytm, has also surprised the nation with news of its payments bank, that is set to roll out next year. All said and done, once we get over the initial cash crunch situation, everything looks poised to set our economy on a cashless track (fast track) to progress.

This initiative will also be well received because everything is tracked, giving greater security to the spender and restricting the options to funnel out money or evade the system.