Cash still king, demonetisation effect gone; digital payments rising but face 2 key roadblocks

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May 28, 2020 11:31 AM

Nearly 83 per cent of the value of total consumer transactions were made with cash in 2018, compared to 87 per cent in 2012.

cashless payment, digital payment, cash, cash in circulation, currency in circulationIt is estimated that due to social distancing and the need to stop the virus from spreading, the cashless payments will rise, but cash will continue to be the main method of payment for a long time.

Cash still rules as the king of payments in India, despite the rising trends of digital payments in recent years, as the aftereffect of demonetisation wears off. Cash in circulation in proportion to GDP has now once again reached a level as high as it was before demonetisation. Nearly 83 per cent of the value of total consumer transactions were made with cash in 2018, compared to 87 per cent in 2012, Capital Economics said in a research note citing RBI data. While it is expected that due to social distancing and the need to stop the spread of coronavirus, cashless payments will rise, but cash will continue to be the main method of payment for a long time yet, the research note added.

Despite various efforts of the government and financial institutions, the number of digital transactions per capita is still very low in India in comparison to other countries. India’s digital payments landscape saw a boom after demonetisation in November 2016, when 86% per cent of the total value of banknotes was discontinued overnight. The incident also suggests that enforced changes in spending behaviour could become permanent if cashless payments have to be increased, the Capital Economics report further said.

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Major roadblocks in cashless payments

Cultural and structural barriers: More than half of the Indian workforce is employed in the informal sector where cash is the most popular method of payments. Also, cash is too popular in India as it is also considered to be the safest and most reliable way to transact even as the ease of the digital payment has been improved.

Technological infrastructure: The technological infrastructure is still weak in India barring people from trusting the reliability of digital payments. While a large number of the population does not have an active bank account, connectivity issues also make digital payments unreliable for many. The quality of internet coverage remains a constraint on mobile payments as India ranked 132 out of 139 countries for the quality of mobile connectivity in a study conducted by Speedtest.net in April, which was below neighbouring countries such as Nepal and Pakistan. Further, fraud cases add to the woes of cashless payments.

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