Growth In Digital Payments Post Demonetization

Digital payments and the need to reduce dependence of cash have been targets for the Indian government post demonetization, and the options for these are being continually expanded. Recent reports have shown a build up in momentum with these new digital payment methods. Simple innovations with universal tools may help India leapfrog into a less cash intensive future. Cash in circulation fell by two-thirds and digital transaction grew by about 40% in the first month after the announcement. But with close to 95 % of all transactions being reliant on cash prior to demonetization, it was a worrying fact that the scenario might return to the same state once new bills were in circulation. Growth in digital transactions was slow in the first few months but latest data as on March shows that the shift from from cash is slowly and steadily happening. The expected 25 billion digital transactions may not be fulfilled by March’18, but at the current rate of 7% monthly growth, India could see 2 billion digital transactions by mid 2018. Data released shows a positive move towards new mobile based payments with older debit and credit card transactions showing relatively lesser growth. Card payments spiked in Dec’16 before declining in the following months. Monthly card payments have been averaging at 245 million while around 870 million cards are in existence, which shows the dormant status of a majority of cards. In comparison, for developed countries like America, 8.6 billion card transactions were recorded per month, which is 40 times higher than a country with a population of four times.
Payment Alternatives:
Long regarded as an ideal cash alternative in developed countries, payment cards have had uneven success due to the limitation on PoS(Point of Sale) terminals across the country. Payment operators like VISA have reported that the cost of this infrastructure shall be higher than the transaction fees that can be supported by the market. Officials have stated that the government has targeted the addition of 2 million PoS terminals by Sept’17. Even if the goal is met, UPI and BHIM offer cheaper alternatives. The new IMPS and UPI systems supporting payments via mobile phone have grown since demonetization even though cash has returned to the system, and that is seen as a development in behavior. Although more data over a longer period is required to provide a full account of demonetization, early results suggest that the policy could be a catalyst at the appropriate moment for a growth in non cash payments. These new platforms provide the infrastructure for better payment applications. BHIM, a government sponsored app for digital transactions, leverages UPI and provides a uniform option for Indians with a smartphone and a bank account. Hence there will be no need for proprietary bank apps between the users bank account and his mobile wallet, lowering transaction fees and saving time. Aadhar card holders can pay recipients with Aadhar numbers and this offers additional synergies with millions of new bank accounts. A challenge that is expected for BHIM is establishing a wide network of users and more importantly vendors who accept payments via this system. The NPCI also launched the Bharat QR code, to complement BHIM and eliminate the need for PoS systems in consumer transactions. The new instructions from RBI states that NPCI, Mastercard, Visa and American Express collaborate on the system as this allows customers to pay the participating merchants by scanning a QR code with their smartphone camera while no technology is required on the sellers end as he only needs to register with the bank to receive the payments. This makes BHIM and BharatQR programs promising, although complete adoption of smartphones will be the only limiting factor in the sequence. With India being the second largest smartphone market with around 280 million devices, penetration appears low at 30% of the population. It is expected that 375 million devices will be added by 2020. To fill the gap temporarily, a system known fondly as *99#, allows residents to make payments using the short messaging service. This system has seen great growth since demonetization and is strengthened by noting Alibaba investing in Paytm and Facebook’s Whatsapp launching its own payment service.
With BHIM, QR Code and the UPI, India has a great chance in developing a national network for payments via the digital medium, that would be cheap and accessible to the rich, poor, urban and rural populace.

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