Evolution of Cashless Society in India

As experience suggests, it is quite possible to live without cash. However, it is restricted currently to urban markets while in rural India, there has not been much progress to make the transition easier. One of the biggest learning experiments is the discounting methodology adopted by various companies as a tool to change payment behavior of individuals. Studies have shown that this can be successful if implemented across long periods of time.

Digital is showing positive impact on deposits through better payment platforms as well as lending. For example, aggregator models operating in India (Uber, Ola, Urban Clap etc.) have led to the emergence of a new credit class of 4.5-5.0 mn people. This is because banks now have information records of incomes of these people, and can better assess their credit worthiness. Mechanisms which have established key use cases have succeeded. Paytm , for instance, can be used to pay Uber, and has thus associated itself with a frequent use case.

There is currently no solution for the transportation segment used by masses. This is a frequent use case, but low transaction amounts are possibly a deterrent. Indian merchant base is retail heavy. Retailer wants credit, footfalls and purchases. Currently, being digital ready does not assure him of increased purchases, though it may make him more credit worthy. However, it could also bring him into the tax net, and hence he may stay away from digital transactions.

A key misnomer is that the cost of digital transaction is high. However, many retailers don’t understand the hidden cost of cash. These include cost of handling cash (frequent visits to the branch which require manpower resource as well as theft). The deterrent is the high cost of POS machines, and lack of smartphones / datas in semi-urban and rural areas.

Rural India can be best served through USSD/STK based payments (which don’t need data, such as the *# services). Regional language based systems are a must as only 125 mn people are familiar with English in India. UPI has scope, though banks haven’t pushed this till now. Of the ~750 mn debit cards issued, ~630 mn are not active. Hence banks are pushing for customers to use cards first, and will push UPI later

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