With around 80% of the demonetised money supply now replaced, not surprisingly, there is talk of digital payments falling back to their pre-demonetisation days. Mint, for instance, talks of how cash withdrawals from ATMs are now much higher than the use of debit cards at merchant outlets (Point of Sale, or PoS, in jargon). So, in April 2016—to use only debit card data—consumers withdrew Rs 225,210 crore from ATMs versus Rs 14,803 crore used at PoS terminals, or a ratio of 15.2:1. By December 2016, the peak of demonetisation, the figures had changed dramatically. Just Rs 84,934 crore was withdrawn from ATMs as compared to Rs 58,031 crore spent at merchant outlets, or a ratio of 1.5:1. In March 2017, the amount withdrawn from ATMs rose to Rs 225,946 crore while that for merchant sales collapsed to Rs 35,699 crore. With even this depressed ratio of ATM-to-PoS at 6.3:1, it suggests the demonetisation momentum is still some distance from being lost.
At a macro-level, while the average monthly use of debit and credit cards at PoS terminals was Rs 20,786 crore in FY14, this rose to Rs 25,939 crore in FY15, Rs 33,299 crore in FY16 and then surged to Rs 54,815 crore in FY17—even if you take only the pre-demonetisation period, the average for FY17 was Rs 42,146 crore; so, digital payments were rising at a fast rate even before November 8. There has been an increase in the use of both NEFT and IMPS transactions after December 2016—NEFT rose from Rs 11,53,763 crore to Rs 16,29,450 crore in March 2017 and IMPS from Rs 43,192 crore to Rs 56,468 crore, but it is not clear if this can be seen as a substitute for card payments. The closest substitute would be mobile wallets such as PayTM and apps like UPI/BHIM, and while there has been a big increase, it does not match the fall in card usage at PoS terminals.
The way things are going, it is possible card usage at PoS could fall from the Rs 68,586 crore in March—the high was Rs 89,180 crore in December—to the pre-demonetisation level in another few months. If that happens, the government will only have itself to blame. For the bulk of small merchants, profit margins are in the 3-4% range, so giving away 50-100bps in the form of commission for credit/debit cards is unaffordable—commissions are 25bps for transactions under Rs 1,000, 50bps for Rs 1,000-2,000 and 100bps beyond that. While the government was quick to come out with a solution when petrol pumps threatened to stop accepting cards if they had to pay the commission, this has not been done for other merchants. If you take December’s Rs 89,180 crore and apply a 50bps commission to this, the annual outgo works out to less than Rs 5,500 crore, something the government can easily afford to promote digital payments. Indeed, to promote Bhim-Aadhaar, the government has not only waived all charges, it is paying a 50bps commission—25bps to the merchant and 25bps to the bank that enrolled the merchant—per transaction. It is true Bhim-Aadhaar hasn’t taken off so far—daily transactions are below Rs 5 lakh—but the principle of the government defraying the cost should be the same even if no additional commissions are to be paid. DigitalPay can’t take off unless the government defrays a large part of the costs.