On November 8, the Indian government cancelled the legal tender of R500 and R1,000 currency notes in a move to counter black money, counterfeit currency and tax evasion. Nearly 68% of total transactions in India are cash-based and through this move, approximately 86% of the total currency in circulation was deemed invalid. It is also expected to create sluggish demand conditions due to liquidity shortage in the market.
However, the current circumstances also create a positive business environment for players engaged in electronic transactions, such as mobile wallets and other digital arenas of banks such as debit cards, credit cards and net banking. Indian start-ups in the digital space offering modes of cashless payments could potentially draw benefit with spikes in their sales. They could also collaborate with other online and offline businesses to expand their existing consumer base.
Expectedly, many companies in India, especially start-ups, have come up with myriad new features, empowering consumers to conduct transactions in a hassle free manner.
In the mobile wallet space, several new offerings have been introduced to tap in to this opportunity. One of the leading players in this domain introduced a new feature, enabling its users to find nearby merchants who accept its respective mobile wallet as a means of payment. Another added feature has been the launch of an application (mobile) based point of sale (POS), facilitating traders to accept all prominent credit and debit cards for payment by providing their respective bank account details. Other players in this domain are collaborating with offline and online businesses, such as mom-and-pop stores, organised retail outlets, branded apparel and footwear showrooms, electronics brands and national level government organisations. Besides these collaborations and new service offerings, they can be seen spending huge amounts on advertising and promotional campaigns across media channels.
Additionally, start-ups in the food delivery segment, cab aggregation and e-commerce domain have launched credit facilities through which the consumer can choose to pay at a later date, usually a week from the day of purchase or consumption. A major e-commerce player in India launched electronic cash on delivery (COD) for its customers, as it facilitated payments via mobile wallet. A leading cab-aggregator introduced a unique service for weddings by collaborating with an online wedding planner, as it offered hosts the facility to provide guests various coupon codes, which could be used for travelling via the aggregator’s mobile application. A global payment gateway with significant presence in India introduced QR code-based mobile payment solutions to enable transactions without the need for any cash or physical cards. An Indian payment gateway company entered into a partnership with a rural e-commerce company, to increase the payment modes available to the latter’s rural consumers.
Sectors such as FMCG, auto and electronics carry out transactions in cash, and demonetisation could have impacted them negatively. However, these sectors promptly introduced new and innovative payment plans to negate the effect, to some extent. The automobile sector collaborated with banks for mobile wallets to facilitate cashless transactions for users. Similarly, electronics retailers are offering zero down payment EMI plans. In the telecom sector, leading industry players are providing the facility of crediting talk time and data to prepaid customers, whereas for postpaid users, they have extended the date for bill payments. One of the largest hypermarket chains of India recently introduced the facility of cash withdrawals across its more than 250 stores by collaborating with one of the major public sector banks.
Various brands across categories such as retail, mobile wallets, payment gateways, auto, electronics and cab aggregators were prompt enough to launch new service offerings, promoting digital transactions in order to ease the effect of demonetisation on consumers. These new services have often been the result of collaboration between online and offline players. However, these companies may face challenges in expanding into rural areas due to low levels of digital literacy and inhibitions in technology adoption. Also, post the demonetisation exercise, digital transactions might decrease as people could go back to their trusted and preferred way of cash transactions. It would be a testament of success for these companies if they are able to retain the additional customers and transactions witnessed during this tenure.
The author, Rajat Wahi is partner and head, consumer markets, KPMG India.