From cash to cashless – the India story
Our transition into a robust digital ecosystem can only be envisioned on the back of a solid telecommunications network.
By: HT Brand Studio
In November last year, when the government scrapped some 23.2 billion currency notes of Rs. 500 and Rs. 1,000 denominations, the aim was to curb corruption and counterfeit currency. The move pushed millions of new users into the fold of the digital economy.
It also brought the limelight squarely on various players in the digital payments ecosystem - mobile wallets, crypto-currencies, payment banks, the unified payment interface (UPI), and the Bharat Interface for Money (BHIM) app.
After demonetization, the total value of all transactions done electronically had risen to Rs105 trillion in December from Rs 95 trillion in November, according to the Reserve Bank of India (RBI), while digital payments company Paytm said it saw a three-times surge in new users. It had more than 14 million new accounts in November alone.
With the government's push for a cashless economy, and the ecosystem around digital payments building up, it might not be long before cashless transactions become more common. A 2016 study by the Boston Consulting Group (BCG) reported that the number of wallet users had surpassed the number of mobile banking users. It was also three times the number of credit card users. The report also projected that by 2020, the size of digital payments industry in India will be $500 billion; contributing 15% to India's GDP.
The challenges of going cashless
India is at a critical stage in its digital journey. It has seen industries like retail, transport and banking being disrupted by companies referred to as technological upstarts, which are huge businesses now. However, the ecosystem that can support a digital economy goes beyond the most apparent players like banks and e-wallets. It needs the government, and major technology and telecom companies to do their bit. A robust digital ecosystem can only be built on the back of a solid telecommunications network.
The benefits of going cashless, or moving from cash to plastic and digital payments are boundless. It's empowering and inclusive. Practically speaking, it makes transactions easy, and convenient, it will save you a trip to the bank or an ATM, and every penny will be accounted for.
In its report, 'Digital Finance for all', McKinsey writes: "We estimate that Indians lose more than $2 billion a year in forgone income simply because of the time it takes traveling to and from a bank."
In the current scenario however, cash is still king. Cash is used for more than 90 percent of India's total transactions, making it one of the most cash-centric economies. To make the shift to cashless will be rewarding, but arduous. It will not just be about making the big changes in policy, or infrastructure but also in mindset.
What lies ahead?
The first step on the journey is to upgrade the infrastructure to suit the needs of such an economy. For instance, at the end of July last year, India had a total of 1.44 million point of sale (POS) terminals installed by various banks, and 200,000 ATMs, according to RBI data. For a country the size of India, that's still not enough. POS penetration in rural areas is much lower, and needs improvement.
The state of access to smartphones and the Internet is not very promising either. Despite the fact that India has one of the largest smartphone populations in the world, the digital divide is vast. Only about 34.8% of Indians can access the Internet.
In terms of Internet speed, India is ranked 105th in the world when it comes to average Internet broadband speed. The average broadband speed is 4.1 Mbps, according to Akamai, the CDN services provider for media and software delivery. Even in urban areas, the time taken per transaction is high. It has to be a smooth experience for the user.
The government's Digital India campaign can solve that to an extent but it will be the tech and telecom giants who will play a significant role.
A big test will also be to get people accustomed to digital payments and build their trust. It's one thing to get people online but for them to acclimatise themselves to a digital life can take a while. Even the best educated people, have come to trust online payments only after years of using the Internet. Such experiences will have to be created for the vast population of the country. They need to start reimagining money as something, which is not necessarily tangible, but a value.
Google's initiative that provides Wi-Fi at train stations in India is a good example. It is giving people access to fast Internet. More tech initiatives like this can be helpful in changing the digital payment landscape in India.
Security is another aspect that might be keeping people away from trying digital payments. In October last year, it was reported that there were fears of almost 3.2 million debit cards from banks including ICICI, Axis Bank, HDFC Bank, being compromised. The data protection and privacy laws in the country are inadequate.
For hackers around the world, data on millions of people is a goldmine. Apart from money frauds, people are prone to their personal information being stolen, or accounts being hacked and used for illegal purposes. Banks, wallet, and credit card companies will have to build robust security mechanisms that can safely hold the data of millions of customers.
The onus will be on the government, telecom and tech companies to come up with solutions for each of the unique problems that India faces in its path to being a cashless economy.