Welcome! You have entered into a whole new world. Unwittingly, there have been changes in your surrounding environment which you didn’t quite plan or anticipate. Yes, this statement is implied towards both withdrawal of high denomination currency in India, and election of a new POTUS. With slight repetition of the changes that have been trending virally across social media communications, I’ll for now focus on the first.
The overnight demonetisation of existing Rs. 500 & Rs. 1000 currency notes, comes mostly as a shock even for many like us who are smirking at our tech savviness. The Indian PM certainly deserves all the applauds for making such a bold move. RBI has been talking about making India cashless for a few years, yet we haven’t observed a step more concrete than this one. While it has primarily been targeted at curbing corruption, the collateral impact will be observed across industries over time.
A Change for Everyone
As of March 2016, the value of banknotes in circulation was Rs 16,415 billion. According to RBI’s annual report for financial year 2015-16, total value of Rs 500 notes & Rs 1000 notes made up 47.8% & 38.6% respectively of this total liquid cash. Now imagine the sheer size of the currency, the population of 1.25 billion people would have to get exchanged. Are banks & post-offices well equipped to handle this even over an extended period?
Honest taxpayers are happy about the decision, but many are unclear about how to plan their immediate expenses. Masses were seen rushing to ATMs to withdraw as many Rs 100 notes they can as soon as the announcement was made. Petrol pumps, late night stores had queues of people waiting to spend their cash in hand. Even after over 24 hours of the announcement & guidelines, confusion persisted. People are trying to find loopholes in the scheme, but RBI seems to have most of the solid things in place. However, let’s again consider the inertia of an economy that is huge but majorly cash-based.
As of July 2016, the total number of active credit cards across country was close to 25 million. Whereas the number of active debit cards was over 697 million. Thus, we have a decent chunk of unbanked population which earns mostly in cash. The retail is still largely unorganised, the subzi-wallahs, auto-wallahs, unorganised labour force anyway don’t have POS machines. All segments like these will individually face hiccups until the new currency notes start flowing in.
The tax evaders who hold illegitimate cash, will get a well-deserved crack down. But that’s a long overdue action to correct the course of Indian economy, and the whole society in general. This might be short lived, as they might devise new ways of running their parallel economy. Can expect temples, and other places of worship to see a rise in cash donations.
A Visibly Big Change, Which is Truly Even Bigger
Once the country is through and out with all the currency transition, it would be wrong to expect for things to go back to how they were till November 8. Like a forcing function, the limit on cash withdrawals would make people from all backgrounds get a taste of making cashless transactions. This would not make India a cash independent society though.
According to a report citing PwC, 98% of all transactions by volume happen in cash. This is the inertia we are facing, even after 35% of the population is digitally connected and over 50% has a debit card. ‘All’ payment tech firms have been devising ways to get India to transact online. And now they have gotten a wild card that might actually work.
The whole idea of going cashless has been embedded in the core growth strategy of India’s startup ecosystem. That’s why FinTech has been a pivotal sector in keeping the other arenas going. Right now though we have to overcome the first hurdle of moving from cash to card, and then subsequently to other payment instruments.
Incentivisation has been a tool used by several tech firms to promote adoption. Freecharge lured its initial users with technically free mobile recharges. Paytm, Mobikwik and the likes have been bullish about cashless offline payments, and frequently have cash back schemes. Cash on delivery or CoD, has been an incentive too, giving skeptical Indians best of both worlds. And thus, allowing Indian eCommerce industry to thrive. Now no limiting cap on non-cash transactions is a benefit in itself.
In the light of recent events, this has changed. Flipkart, Snapdeal, Amazon and other online stores have stopped accepting CoD orders. It’s not clear how will this turn out for the economics of these companies on a short term basis. But in the long scheme of things, abolishment of CoD practice would turn out to be a boon for both eCommerce & logistics firms. Hence it’s a litmus test for the online retail industry, to see if it has gained enough belief.
Let’s just also say that it’s a good time to be in the mPOS industry too. A lot many restaurants and home delivery businesses will now understand the need of offering ‘Card on Delivery’.
Time For Tech Evangelists To Do Their Job
Payment startups and companies are the happiest right now. Their marketing teams are at work to capitalise on this opportunity. It’s only a matter of who clicks with the consumers first, and successfully converts them one at a time. Meanwhile, since Unified Payment Interface was introduced in August this year, it’s a good opportunity for the Government to impart digital education too. Internet penetration will grow at its own pace until major steps are taken. Since the number of smartphone users are growing at a faster rate, mobile payments can get a well-deserved push.
The management of the country would become a lot more easier & transparent, if every rupee is accounted for. Additionally, a lot of money would be saved from reduction in printing costs of paper currency. It’s a great time for the connected individuals to treat the concept of ‘Cashless Society’ as a product, and letting the network effect kick in, converting more people as we move along towards a more stable growing economy.
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