Business, Governance

Will Demonetization Help in Building a “Less Cash” India?

Demonetization and Less Cash India

The talk of not just the town, but the country as a whole is the demonetization stint pulled by the Government on the 8th of November, 2016. While the currency modification paradigm was brought in place to prevent the hoarding and the subsequent circulation of unaccounted money, it has eventually conjured a number of side effects. Long ATM queues, liquidity crunch and the overall hardships countered by the common public are a few of them. However, it is these very hassles that could lead India into an era of digitization. Unavailability of cash forced the masses to sample alternative digital payment methods, which led to a magical surge in the number of cashless transactions and could eventually lead to an exhaustive “Digital” economy for India. Below we discuss the background, the solicited sources and means as well as the anticipated effects of this demonetization, which could fuel the cashless trend in India:

The Indian economy and its dependence of cash1:

Even after the global advent of technology, India has severely lagged behind in successfully incorporating digital payment methodologies. This is mainly driven by two factors – the lack of awareness and a conscious pushback on digitization of payments. With a majority of masses remaining untaught about the various means of cashless payments, there wasn’t much they could do up until now, to participate and avail the benefits of digital payments. According to a 2015 report by PWC, India’s unbanked population itself stood at an alarming 233 million. With the Government’s push towards opening bank accounts for these masses under the Jan Dhan Yojna, a huge number of bank accounts were opened, but they were largely inoperative up until the demonetization announcement.

Apart from this obliviously unaware lot, there is another set of the population who deliberately avoid digitalization in order to not leave a trail of such transactions. Disturbingly, India carries the highest cash to GDP ratios in the world.  Further, the RBI spends close to Rs. 21,000 crores each year in lubricating core-cash operations. These numerals tell us of everything that is wrong with an overbearing cash economy and the urgent need to turn it around with digitization.

Pre-requisites and need of a Digital economy in India 2:

The Digital India dream as visualized by the Indian Government may become a full-fledged reality sooner than not if collaborative efforts are taken in the right direction. Considering that 90 percent of the transactions in the country are predominantly in cash, powerful efforts will be required to champion this change. The demonetization move, though criticized by many, has been a fool-proof plan to urge the population in employing cashless payment models. There has been a remarkable rise in digital payment pathways such POS terminals (pioneered mainly by banks), mobile wallets (pioneered by a few prepaid wallet players), government-powered interfaces such as UPI, among others that are providing an important aid to the economy as a whole. Post demonetization, some of the wallet providers have already confirmed an exponential growth.

Earlier last year, the Reserve Bank of India (RBI) had granted permissions to a bunch of Indian companies to setup payment banks in India. Further, with India being a growing economy, a rise in digitization will only create favorable conditions for inducing foreign investments, which will go a long way in bolstering the Indian economy. With the Government initiating the digital movement and various players such as the Banks, Financial Institutions, IT firms, etc. piloting their own supporting platforms, the only pending pre-requisite is for the public to receive the changing cashless wave with open arms.

The novel mainstays and the subsequent trends of the cashless movement:

As discussed earlier, there has been a substantial rise in the popularity of a number of technology-enabled payment methods since the dawn of demonetization. Apart from the noticeable growth of mobile wallets, usage of cards at POS terminals and faster adoption of mobile banking methodologies, there are few more initiatives that have supported the digitization of payments:

1) Online payment gateways like EBS play a vital role in this transition

Online payment gateways have traditionally catered to sellers selling their product & services remotely over the internet through websites and mobile applications. EBS (E-billing Solutions Pvt. Ltd), a fully owned subsidiary of the Ingenico Group, is one such leading online payment gateway in India. It is a payment aggregator that helps online sellers receive payments from the end customers via a cluster of payment methods including net banking, debit/credit cards and mobile wallets.

Post demonetization announcement there was a cash crunch for a number of days and the clients of EBS started facing challenges to fulfill their cash on delivery (COD) orders. EBS was very quick to react in this situation and supported its online sellers to convert the COD transactions into payment links that can be sent over Email & SMS. The customer can simply click the link and make a payment using one of the listed payment methods. The seller would dispatch the goods only after receiving a payment confirmation from EBS, thereby converting a good chunk of their COD transactions into prepaid and thereby avoiding returns.

There are a number of other initiatives that players like EBS are working on. Given the need for the businesses to go live and start accepting payments faster to minimize the opportunity loss, EBS promises a prompt on-boarding process with minimum human intervention. It allows businesses to register at a zero set up cost and a go-live turnaround of just 24 hours post online registration by the seller. Apart from a multilingual payment page (supports 7 regional languages), EBS also allows merchants to customize their own payment gateway page by adding their logos and designing edits if need be.

Recently, the Government of India and then the Reserve Bank of India announced sops on MDR for some of the debit card transactions. EBS promptly responded to these initiatives and passed on these MDR benefits to its online sellers.

2) Rise in Payment on delivery in contrast to COD transactions 4:

E-commerce portals and online businesses were thriving on the Cash on delivery functionality to a great extent prior to the introduction of demonetization.  Despite 600 million plus debit and credit cards in the country, cash was the preferred means of payment for online buyers. However, the liquidity crunch in the country led to reduction in cash transactions across domains. To safeguard themselves in such a scenario, the e-commerce sector shifted towards promoting prepaid transactions and also towards acceptance of cards (debit and credit) on delivery by ensuring that the delivery personnel carry a POS device.

Apart from this, the other method of enabling digital payment transactions without the need of a POS terminal is very similar to how EBS helped some of its sellers convert COD transactions to prepaid transactions. In this, the seller is equipped with a mobile or web application using which they can then raise a payment request to their customers over email & SMS. Customers can then make an online payment on their mobile phones or any other device by accessing the EBS payment page. Once the payment confirmation is provided to the seller, the goods and/or the services are dispatched / delivered.

3) Introduction of government led initiatives such as UPI and BHIM 4,5,6:

Being the forerunner of Digital India, the Government of India is widely fostering the growth and disbursement of digital platforms. Apart from granting licenses and permits to many private players in this domain, the government is also leading such initiatives with the help of NPCI:

  • UPI: UPI stands for Unified Payment Interface and it is run by the National Payments Corporation of India (NPCI). The mechanism behind this novel platform involves the use of an app to transfer funds from one bank to another, without the hassle of typing out bank account details or the IFSC code. In UPI, the recipient is required to register with any UPI enabled app (mostly provided by the banks) to create a unique virtual payment address (VPA).  Over 21 banks including ICICI, HDFC, SBI and others now have their own UPI app for android/IOS users. The sender can simply transfer money using their UPI app to the recipient’s VPA. The money is instantly debited from the sender’s account is credited into the recipient account. Though it is still in its early stages, UPI is a boon for many in India in the current era of post-demonetization.
  • BHIM: BHIM stands for Bharat Interface for Money, another Government of India initiative, is operated by the National Payments Corporation of India (NPCI). To use this service, one needs to download the BHIM mobile application and register their bank account using debit card credentials. BHIM allows its users to create UPI VPAs and transact digitally over the UPI rails. To explain it simply, it is the UPI application created by NPCI and can be used by all account holders of UPI enabled banks. This service also has the ability to function without the internet over USSD channel. With several banks now supporting the BHIM, it is another solicited initiative that wholly supports the Digital India movement by the Government.

As per the India-E-Commerce-Market-Forecast-and-Opportunities, 2020;7 India’s ecommerce market is projected to grow at a CAGR of more than 36% between 2015-2020, with the B2B segment predicted to grow by 2.5 times by the end of the period.  These numbers further corroborate the burning need to embrace digital, cashless mechanisms. Demonetization has certainly helped the Indian economy to take a leap towards the eventual goal of digitization. With its positive force, the populace including common masses, online as well as physical sellers and marketplaces are incorporating various electronic models and payment methodologies that are slowly but significantly guiding the country towards the pinnacle of a digital and a “less- cash” India.


Sources: 1, 2, 3, 4, 5, 6, 7

Disclaimer: This column is powered by E-Billing Solutions (EBS)

Image Credit – Shutterstock

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