Going Cashless in India

January 5, 2021

In a country with infrastructure challenges like India, digitization adoption initially seemed like a distant dream, 78% of the consumers have adopted online shopping. India's UPI has taken off from nothing to 800 million monthly transactions in less than three years. As posted on the official website of cashless India, the Digital India programme launched in 2015. It is a flagship programme designed to transform India into a digitally empowered society and knowledge economy. One of the professed roles of Digital India is to make financial transactions "Faceless, Paperless, Cashless."

Driving Forces Behind India's Emerging Cashless Economy

A cashless society wasn't the primary goal of the draconian currency ban that happened in November 2016. But when a severe shortage of banknotes gave a shot in the arm to widespread adoption of digital wallets, that plan acted as an afterthought to justify an action of state overreach.

Demonetization to curb the black money menace has confirmed that going cashless is feasible in India. Post demonetization, India has witnessed a 55% rise in overall digital transactions, with mobile-banking usage rising by a whopping 122%. The government's agenda in building a 'cashless," paperless,' and 'presence less' economy certainly seems to be taking shape.

Since demonetization, the Indian Government has been encouraging going cashless like never before, giving digital currency new hope. Programs like Digital India and Pradhan Mantri Jan-Dhan Yojna (PMJDY) have been successful in getting more people to adopt advanced banking.

The discomfort towards handling cash is presumably the biggest motivator to going digital. With the advancement of digital modes, people can avoid the queue for ATMs, transact with each other 24*7 and save time. Additionally, with the emergence of e-KYC, it is no longer necessary for service providers to know your customer physically as the payments model has overcome limitations related to physical presence.

India’s Journey Ahead

Various surveys conducted have proved that the pandemic has made consumers more positive about online shopping. A recent study of 11 countries by Capgemini reveals that India leads the pack in using digital payments during the global pandemic. Surprisingly, it is the senior citizens who are leading the way. 80% of Indians aged 66 years and above revealed they would attempt digital transactions versus a global average of only 35%. 

In 2020, India saw a rise in digital transactions of up to ₹2.18 lakh crore in May alone because of the nationwide lockdown. Primarily owing to the fear of catching Covid-19 through cash dealings. Apart from convenience, digital payments also offered the assurance of greater transparency and reduced dependency on middle-men and banking monopolies. 

Indians have proven, time and again, that they have a longing for inexpensive innovations that help ease daily activities. Market demand is already there, and with multiple choices of e-wallets, United Payments Interface (UPI) systems, Unstructured Supplementary Service Data (USSD) citizens have and more ways to transact financially online. While mobile wallets, such as Paytm, Google Pay (Tez), PhonePe, HDFC Payzapp are being used for several purposes, such as recharging mobile, booking movie tickets and hotels, or sending money to friends, family, and business associates.

Payment Tools Go Cashless in India

India is a mobile-first nation, with millions of new users getting access to the internet every month. As per the report published by ICUBETM, at 574 million, India’s internet penetration grew from 24 percent to 41 percent of the population in 2019. As citizens get more comfortable with the idea of making cashless payments, the total value of digital transactions is also rising at an equally fast pace. 

For example, since its commencement in 2016, transactions via the UPI system reached Rs 2 lakh crore value by the end of 2019. According to Razorpay's The Era of Rising Fintech report, India saw an enormous growth of 383% in digital payments in FY18-19. This proves that the Indian digital transactions market is set to grow at a rapid pace.

E-wallets offered by Paytm, Mobikwik, Freecharge, Oxigen, Reliance Money, etc., are even bringing the weaker section towards payment digitization. Even banks like SBI, HDFC Bank, AXIS, ICICI Bank, etc., have launched their e-wallets app viz a viz Buddy, Payzapp, Lime, Pocket respectively.

Whereas the smartphone revolution has led to the emergence of e-commerce, m-commerce, and other services, including app-based cab aggregators, which encourage digital payments to use various services. The value-added services such as cashback, bill payment facilities, loyalty points, rewards, and ease of use have resulted in such digital platforms' surge. These advancements have provided a solid foundation for the modern payment model.

The Bottom Line

According to the report by Google India and the Boston Consulting Group, by the year 2020, $500 billion worth of transactions would happen online in India, increasing by 10 folds. Also, cash-based payments are expected to fall by 40 percent in the upcoming times.

Cashless transactions have grown 20 times in the last 6 years. And this data was before the demonetization initiative. Looking at the recent trends, it is safe to say that India is making considerably significant progress in the cashless country record. While a cashless India may seem a tad too pretentious at this time, a "less cash" India is surely around the corner.

Send more than money.