Demonetisation: Here’s how India could transform itself into a digital economy

By | 23rd November 2016

With the 8 November demonetisation announcement by Prime Minister Narendra Modirendering 86 percent of cash in circulation (Rs 500 and Rs 1000 notes) as illegal tender, the probability of a major shift to electronic means – cheques, bank transfers, plastic use (debit, credit), e-wallets is major. Supporting the move, Finance Minister Arun Jaitley urged Indians to switch to digital methods of payments to tide over the expected hardships over the next few weeks as cash will be in lower circulation.

Samsung's new Samsung Pay mobile wallet system is demonstrated at its Australian launch in Sydney, June 15, 2016.   REUTERS/Matt Siegel

Samsung’s new Samsung Pay mobile wallet system is demonstrated at its Australian launch in Sydney, June 15, 2016. REUTERS/Matt Siegel

Representational Image. Credits: REUTERS/Matt Siegel

However, does demonetisation magically switch India from one of the most cash intensive economies in the world to being a cashless pioneer and create a blueprint for other countries who want to go this route? The long and the short answer is a big no. And I explain why.

Barriers to digital payment options

Acceptance Infrastructure

Point-of-Sale (POS) terminals penetration in India is amongst the lowest in the world. While that is a collective grievance being addressed by ecosystem players and the RBI has planned a fund (Acceptance Development Fund) to improve numbers, it’s a long term play.

MasterCard study of micro merchants in India indicates that young merchants in the age group of 35-45 are most likely to adopt electronic payment systems. Hence, in the short term, focus should be tech-lite innovation of acceptance solutions and fulfil this merchant need.

Internet Availability

While India is the second biggest smartphone market in the world yet mobile internet usage is low hence digital only payment solutions do not find a firm footing in the ecosystem despite consumer/merchant readiness

Consumer behaviour

When you know better, you do better -Maya Angelou.
Consumers have known no other way to pay other than cash which is now. It’s trusted and is learned behaviour. The learning curve with digital methods is steep especially with low literacy levels and internet access being a privilege which deters a switch over.

Government Backing and Policy Support

Immediate surcharge removal on all forms of payments by plastic on all government institutions including airports, insurance providers, hospitals, restaurants, ticketing should be the first priority for the government to incentivise use of non-cash methods and ensure less stress on citizens who face a cash crunch.

Woman holding credit card above laptop keyboard

Woman holding credit card above laptop keyboard

Representational image

An order to have POS machines installed at all government owned/backed institutions will ensure a quicker behaviour shift than all private operators put together. Not to mention, ease citizen stress immediately

Financial Literacy

Knowledge is power. Enable everyone with basics in how to use banking services, debit cards, security of PIN/Card, linking mobile number with a bank account and how to use a card instead of cash. Extend to use of wallets on smartphones for payments. There is no bigger enabler than this to empower citizens and cause a force multiplier for true adoption and disruption of the digital payment economy in India.

It’s very fair to infer that cash will lose its status as king to give way to another player in the race to the top – digital. Some might say it’s a self-fulfilling prophecy that India will emerge as a less cash reliant people and economy, but a much bigger goal for the country should be – a 10 year plan to be a truly cashless economy. If you share views on demonetisation and its side impact on the digital landscape, please drop a comment below or tweet to us.

The author is a payments ninja specialising in digital payments. Views expressed here are personal. She tweets @jasuja.

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