The day after the Narendra Modi government move to demonetise Rs 500 and Rs 1,000 currency notes was in a way India’s first cashless day in a way. That move has pushed India in the direction of a cashless society. As things stand, while over 90% of transactions are still done in cash, there is a growing move towards adopting digital transfer of money. But can India, where people love the feel of hard currency in their wallets,move towards digital transactions quickly?
Over the past couple of years, the government has done much of the groundwork to move towards digital transactions. The Pradhan Mantri Jan Dhan Yojana (PMJDY) that was started in November 2014 has resulted in new bank accounts for 25.45 crore people. While almost 24% of these are still zero-balance accounts, over Rs 45,302 crore ($ 6.8 billion) has been deposited in these accounts. More importantly, 53.4% (13.6 crore) of the accounts have been seeded with Aadhaar numbers and 19.44 crore (76.4%) of the accounts have been issued RuPay cards. So while the government knows who owns the accounts, it can over time help these people to transact digitally.
Meanwhile, people in the bigger cities have already adopted online banking in a big way for payment of utility bills – electricity, water, property tax and piped gas. The big advantage that India can leverage is the deep spread of mobile phones, and in particular smartphones. Since India has the most smartphones globally after China, it makes it all the more easier to opt in for mobile wallets. Already, mobile wallets like Paytm, Freecharge and MobiKwik have seen a surge in transactions since Modi’s announcement. Freecharge reported a 12X overnight jump in average wallet balance as consumers loaded their wallets before the cashless day.
That’s not all. The government created JAM (Jandhan Aadhaar and Mobile), which interlinked transactions to the mobile phone. For quicker funds transfer, it launched the Immediate Payment Service (IMPS) under the National Payments Corporation of India (NPCI), that allows instant money transfer across India round-the-clock. In August, NPCI made the Unified
Payment Interface (UPI) – which allows money transfer between any two banks accounts using a smartphone – operational.
But, globally the Nordic countries have made the most progress towards a cashless society. After three masked men in 2009 robbed a cash depot in Stockholm, Sweden started the process to go cashless. Today, it’s come to a stage where it is quite difficult to pay in cash for even a coffee in a restaurant there. The fall in cash apart from reducing street crime also lowers cash handling costs for banks and financial institutions.
The benefits for India are immense, despite being a long way off from where Sweden has reached. But, since the big change has happened, the government should make it difficult for people to pay in cash. Maybe, a cash back on digital transactions could help. The time to change is now.