Will India Become a Cashless Economy?

For the ordinary urban millennial in India, a smartphone is as essential as clean air, but not nearly as hard to find! It is hardly a surprise then, that so many of them routinely fall back on their nifty devices to do much of their work for them: from ordering food delivery to hailing a ride. With their ever expanding functionalities available to us at the tip of our fingers, it was only a matter of time before we switched to paying online as well.

2019 did not disappoint in that regard, becoming a defining year for fintech and digital payments in India, with UPI (United Payments Interface) and similar services taking the country by storm. Accelerating the momentum it had gained from the hugely controversial demonetisation policy of the government back in 2016, digital payments found thousands of new takers across the country, luring them in with the promise of convenience and cashbacks. The surge in popularity of online payments, alongside the usual card-based transactions, came as excellent news for the proponents of the Digital India campaign, as they gleefully celebrated our bid to go cashless.

As we usher in a brand new decade, those at the helm of the campaign and the National Payments Corporation of India (NPCI), are determined to steer us towards a cashless future as quickly as they can. In fact, today we are seeing more and more people fishing their phones out to pay at restaurants and theatres, or to simply settle dues with their friends. From all that we see around us, it is rather evident that a substantial chunk of Indians are now stepping out of their homes without stuffing their wallets with wads of cash; relying on a plethora of payment apps on their phones instead. 

However, despite the resounding success digital payments have seen so far, is India really ready to leave cash transactions behind in 2019?

The facts and figures tell us otherwise...

Cash Still Wears the Crown

Even though the Indian government did try quite hard to upsell the concept of digital payments in the wake of its heavily criticized demonetisation policy, data from the Reserve Bank of India tells us that we are still a long way off from those efforts bearing fruits. 

In its Annual Report 2018-2019, the apex bank of the country noted that the value of the currency in circulation had increased by as much as 17 percent in March, reaching a total figure of 21.10 lakh crores. The report also points out that people were most likely to opt for 500-rupees notes, which is the second highest denomination currently available in India.

In terms of volume, the year saw a 6.2% rise in circulation. 

As is evident from these figures, cash is still king in the Indian context. However, that does not necessarily mean that digital payments aren't seeing success as well. In fact, the report also notes that e-payments in retail jumped by a whopping 59% over the same period, taking the total value of all such transactions to 23.3 billion. Moreover, in the period between October 2018 and September, 2019, digital payments constituted 96% of all non-cash payments made for retail purchases in India. 

What's Keeping Us From Going Cashless?

Even though cashless payments have received a major boost from the government's support and an expanding technology stack, they are far from becoming the chief mode of payment for a majority of ordinary Indians. Despite smartphone adoption rising steadily, even in remote areas of rural India, massive chunks of the population still shy away from relying on something that is so inherently intangible in nature.

However, the obstacles to going cashless are far graver than simply the unwillingness of potential users. For starters, India has a very large proportion of unbanked people, and even those that have been brought under the purview of the Pradhan Mantri Jan Dhan Yojana often leave their accounts dormant. For making digital or electronic payments, having a bank account is a prerequisite. In fact, for some of the online payment services, it is also compulsory to complete a KYC verification process. Considering how so many Indians are yet to have even a bank account, let alone the enthusiasm to complete time consuming verifications, it is obvious that the country is not yet poised to go cashless nationwide.

Moreover, even though smartphones are selling like hotcakes all over the country, technology adoption has not advanced far enough to let every demographic embrace the concept of safe and secure digital payments. While more and more people may be signing up on social media sites and watching YouTube videos on their phones, not even half of them are comfortable enough to complete online transactions without falling prey to scams and frauds. 

With universal web access, robust cyber security and all-round financial inclusion still being distant dreams, it seems understandable why cash is still king despite the burgeoning popularity of digital payments. Although digital payments are definitely having a moment, they are far from taking over the entirety of India's variegated economy. Even if India does go cashless someday, it will not be anytime soon.

What's the Road Ahead for Digital Payments in India?

While it is safe to conclude that India will not go cashless in the near future, that in no way means that digital payments don't have a dazzling future ahead. In fact, from everything that's lined up, it only seems likely to see greater success this year. 2019 saw India warm up to digital payment platforms with one of the most successful instances of gamification planned and executed by Google Pay during Diwali season. The app saw the number of its daily active users skyrocket, and many of these new users continued to dip their toes into the world of digital payments even when the game came to an end. Besides, a lot of these new digital payments enthusiasts also diversified, checking out other payment platforms too, hunting for deals and best cashback offers. 

Even though the practice of retaining users with great discounts and cashbacks may not be the most sustainable business model in the long run, it does have a clear benefit: of introducing new users to this mode of payment, and getting them hooked on to the convenience of it all. With e-commerce sites, food delivery apps and other services tying up with these payment platforms to provide exciting offers to Indian consumers, the popularity of cashless transactions is only slated to go up.

• November 2019 saw the RBI announce a slew of measures to popularize this form of payment, as it decided to scrap fees on all NEFT (National Electronics Fund Transfer System) transactions from January 2020,

• And introduced the interoperable Fastags system for users to pay for parking and toll via UPI. In the same vein, the RBI also made NEFT services accessible 24*7 (including bank holidays).

• In addition, other wings of the government have also pushed the pedal on digital payments, with the CBDT (Central Board of Direct Taxes) announcing that merchants (with an annual turnover of over 50 crore rupees) will be fined 5000 rupees per day if they fail to include digital payment facility to customers.

• The government has also recently scrapped the Merchant Discount Rate (MDR) on all Rupay and UPI transactions, and is reportedly planning to do the same for debit cards in the near future.

With all these moves designed to attract more people towards the ease of digital payments, it is highly likely that India will continue to see a surge in this regard, even if it does not go cashless.

In fact, Dilip Asbe, the Managing Director of NPCI, has noted that

Digital Payments are going to be a lot cheaper than cash transactions in the future, and that QR code-based payments will gain ubiquity in the coming days.

His hope does not seem all that misplaced, given the speed at which India is embracing online payments today. However, since the Indian economy is characterised by a rather large proportion of unorganized sectors and unbanked people, the transition to a cashless future will not be as easy or quick as we would like to hope.