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A year after demonetisation: Still a cash economy, but mobile payments heating up in India

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Digital transactions that spiked after demonetisation kept rising even after cash had returned to India’s ATMs.

220 million. That’s the number of users India’s top mobile wallets brand, Paytm, now has.

Large numbers rarely shock Indians. But consider that most of these were added in three months after November 2016, and that this is already bigger than India’s largest bank SBI’s customer base, and you get an idea of the impact of demonetisation on, at least one part of digital payments.

Masterstroke or disaster? Plenty has been written and spoken about demonetisation, with many global critiques (including HBR’s) tending to lean away from the masterstroke view. I’ll just focus on whether it gave a big boost to digital payments.

Plenty of services, apps

A year later, cash is fully back in the ATMs. But the digital payments market is heating up, with global players adding to the local ones. Last month saw the launch of Google Tez, a mobile payments service and app that uses UPI. Paypal’s India Pay prepaid service and app is coming soon, this month.

And then there’s WhatsApp. The Facebook-owned service’s launch of a payment feature within its app will be the most interesting and disruptive thing to happen this year. And it will be a first for WhatsApp, worldwide.

Last month in China, I looked hard, everywhere, and found everyone making and receiving payments in WeChat, their version of WhatsApp. Every little shop, cabbie, roadside hustler. “Only cash or WeChat.” WeChat has over 900 million active users!

WhatsApp-pay will be similar: you’ll make a payment without leaving the chat interface. Why’s this big? Because everyone, including my maid, driver and vegetable vendor, uses WhatsApp already, so they have a ready 200-million base in India. (Elsewhere such as in the US and UK, Facebook is enabling its Messenger app for payments.)

Then there’s UPI itself, the government-run NPCI’s Unified Payments Interface, now supported not just by their own Bhim app and by most bank apps, but also by an increasing number of other apps: Uber, and most importantly, Paytm.

Using UPI is not as seamless as an m-wallet: you have to switch to your bank app and approve each payment, however small (unless you use your Paytm Bank UPI ID for Paytm payments, in which case you stay within the app). Sometimes, those UPI payment requests don’t show up in time.

Digital payments to double in 2017-18

With all of this, digital payments is likely to be double in volume this fiscal year in India. Yes, the base was small, but the rise is huge, and consistent. Digital transactions kept rising even after cash had returned to India’s ATMs in March and April, according to a recent government report. There’s big growth across most platforms and payment systems, including m-wallets, debit cards, UPI-Bhim, and the NEFT and IMPS bank-transfer systems.

It’s getting big enough for the government to be worrying about transaction fraud. The home minister chaired a meeting last month which shortlisted suggestions including a ‘security fee’ on every transaction, a sort of digital transaction tax — a terrible idea for an aspiring Digital India.

Did demonetisation cause this jump? There’s no denying it gave digital payments a big spike via the economic version of TINA — “there is no alternative” — when cash was pulled out of the system. Most of that early growth happened with Paytm and plastic (debit cards). The government-promoted USSD (a system for non-smart or ‘feature phones’) was almost unusable, and it was early days for UPI and the Bhim app.

What happened when cash came back? That spike settled back down, especially for Paytm, but growth began across the board and continued when cash returned.

As it happens, when the prime minister made the mother of all announcements on 8 November last year, work had been well under way to give a big push to digital payments — for nearly a year.

Among other things, the RBI had issued a significant set of guidelines for PPIs (prepaid payment instruments, or mobile wallets, in July 2016), and a high-powered committee for accelerating digital payments was set up by the finance ministry and chaired by a senior advisor at NITI Aayog, from September through November 2017.

The latter resulted in one of the most progressive roadmaps for digital payments ever, worldwide: the Watal Report. This was no mean feat, given the diverse players in that committee, including RBI, finance ministry, IBA (Indian Banking Association), and NASSCOM. That report is being implemented rather too slowly, as reports tend to be. But we’ve seen the first steps, including (coming soon) the inter-operability of payment systems, especially m-wallets, now finally allowed by RBI.

Tapping the newly-banked

And the government has been pushing ahead with its ‘JAM trinity’: Jan Dhan-Aadhaar-Mobile. There were 301 million PM JDY (Jan-Dhan Yojana) bank accounts as of 1 November, and over a billion Aadhaar numbers and mobiles. Most of those newly-banked bottom-of-pyramid folks aren’t really making digital payments, but are strong candidates.

And there’s the M in JAM, for Mobile. Strictly speaking, the 1,186 million mobile subscriptions reported by TRAI translates to about 700 million mobile users, after removing 163 million inactive accounts and accounting for multi-SIM usage, but that’s still an awful lot.

As we have seen in China, all of those 700 million (and counting) people are potential users of mobile payment apps, as long as these are easy to use, cheap and secure — with or without demonetisation. Or cash.

Prasanto K. Roy (@prasanto) is vice-president at NASSCOM and head of its Internet Council. The views expressed are his own

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