India's futile attempt to go cashless is a reality check for our dream epayments future

Posted on Nov 16 2016 - 7:54am by Huzoor Bux


One thing that’s become evident from India’s surprise move to invalidate its most circulated currency bills is just how utterly unready the country is for epayments.

Hundreds of millions of Indians are queuing outside banks and automatic teller machines with dim hopes of actually getting some cash. There isn’t enough of it, they know, but no better alternatives are there for them. 

Though epayments solutions, especially mobile wallets such as Paytm and Freecharge have existed in India for a while — and are seeing a booming growth in the wake of Prime Minister Narendra Modi’s announcement last Tuesday to fight corruption by invalidating the most widely circulated currency bills in the country — Indians are learning it the hard way that epayments are currently a very poor substitute for cash.

This incident can also serve as a lesson for other countries who are increasingly looking at ways to move transactions toward epayments but may not have taken into account how the lives of millions can turn upside down by problems that might seem minor at the time. Moving toward cashless can have many advantages — countries such as Sweden, Denmark, and Norway have luckily made great progress on this front — but it’s not easy to replicate this success in every market. 

Why do we need epayments solutions?

Electronic payment solutions, which includes making payments using plastic cards, have huge potential. They are more secure, they are easy to track (helps you with better financing), they are cheap (no paper overhead costs), and they are instantaneous. Moreover, embracing them saves your country a great deal of money. Economists have long suggested that India could save tens of billions of dollars each year if it cuts its reliance on paper cash.

“Delivering government payments electronically to the poor will not only pay for itself but will connect households to a formal and secure financial grid,” management consulting company McKinsey & Company advised India six years ago. “The basic infrastructure and connectivity this provides will also create an attractive business proposition to encourage private players to enter this space and provide services to the poor.”

Fast forward to 2016. Even those Indians who habitually did most of their transactions online are discovering that electronic payments solutions are not ubiquitous in the country yet. 

Today, most people have the option to book a movie ticket using their debit card or mobile wallet, they can also pay for their cab without having to reach for paper money, and their lunch expenses can also be taken care of online. But the other significant daily expenses such as buying vegetables, milk and other home grocery products — even to those people living in India’s most urban cities — could be tedious and futile without physical bills.

Several small businesses Mashable spoke to over the past one week have said that the Indian government’s decision to demonetize Rs 500 ($7.5) and Rs 1,000 ($15) bills has significantly curtailed their earnings. Many shops in the local markets are closed because “nobody is buying anything.” “Nobody has cash to buy things,” an owner of a sweet shop at Alaknanda, New Delhi told us.

Where we are today

Looking at small towns and rural areas, which account for the vast majority of the country, things appear even worse. There are fewer bank branches, and locating ATMs is often an exercise in futility. Furthermore, nearly every shop in such remote areas doesn’t have a point-of-sale terminal that accepts epayments, or even plastic.

The penetration of debit and credit cards in India remains low despite recent efforts by the government to get more to bank. As of 2013, only about 400 million Indians had a bank account. According to a report late last year, 80 percent of India’s female population don’t have a bank account.

India is uniquely different from many other countries, though. Even many who do have a bank account in the country don’t necessarily use plastic cards to do transactions. A whopping 88 percent of all the debit card usage in India are to withdraw money from automatic teller machines. Transactions at point of sale (PoS) terminals account for only 12% of volume and 6% of value of total transactions, according to a paper released by Concept Paper on Card Acceptance Infrastructure. 

One of the issues that is preventing India from going digital is lack of smartphones. Though India is the fastest as well as the second largest smartphone market, there are only about 300 million smartphone users in India. This prevents the vast majority of people from getting their hands on the terminal that they need to make use of mobile wallets, for instance.

In places such as the United States, where only 8 percent people are without a bank account, it may appear that it’s only a last mile problem before all Americans are able to pay for everything digitally, but at places like India, and even several other Asian markets that have been increasingly trying to go cashless, we are simply not there yet. 

In Indonesia, for instance, only about 20 percent of the population had a bank account in 2013, with debit card penetration standing at 11 percent, and just 3.2 percent of the population possessing a credit card. Though epayments solutions are slowly gaining ground in many nations in the Middle-Eastern region, cash is still the king there. About 85 to 90 percent of retail transactions in MEA region involves cash and cheques. The UAE, which is one of the leading countries in MEA region in terms of electronic payment technologies adoption, still sees the vast majority of its transactions done with paper bills.

Cash remains the king in many countries, and it will be years if not decades before much of the world can part ways with the paper bills. 



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