Can India really become a cashless society?

[艹艹艹]

http://www.bbc.com/news/world-asia-india-38048051
Can India really become a cashless society?
By Sameer HashmiMumbai business reporter

• 3 hours ago
• From the sectionIndia

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Image copyrightGETTY IMAGES
Image captionSmalls businesses have been affected due to the currency ban
On the evening of 8 November, vegetable vendor Vishal Gupta was preparing to shut his roadside stall when Prime Minister Narendra Modi announced that 500 ($7.30; £6) and 1,000 rupee notes would be banned effective midnight as part of a crackdown on corruption.

Within minutes, people were out on the streets - queuing outside ATM machines to withdraw money in lower denominations or rushing to shops to buy provisions. The two banned notes account for 86% of all notes in circulation in India's largely cash economy.

"I sold all the vegetables in my stall in 20 minutes. This had never happened before," Mr Gupta told the BBC.

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But the following day, he did not earn anything. Very few customers turned up and even those who wanted to buy vegetables did not have change to pay him. The situation continued for the next five days where without buyers all his vegetables got spoilt, causing him a loss of over 10,000 rupees ($150;£121)

Desperate to earn some money, Mr Gupta turned to popular mobile wallet Paytm, which he had heard about from his friend. Mobile wallets are apps that allow people to load and transfer money electronically using their smartphones.

Media captionThe village that avoided India's cash crunch
"The situation is better now. I get at least four to five customers a day who use mobile wallets to pay me," he says.

Like Mr Gupta, many small business owners are using mobile transactions and cards to survive.

One of the biggest beneficiaries of the government's decision are financial technology firms which have seen a surge in new customers.

Paytm, India's largest mobile payment company, says that it has seen a 700% increase in overall traffic, and a 300% hike in the number of app downloads with daily transactions touching 5 million.

It currently has 85,000 merchants on its platform but the company has now set a bold target of signing up another five million by March 2017. The company is backed by Chinese e-commerce giant Alibaba.

"We have seen remarkable growth since the currency announcement came in. We are opening offices in small cities and towns to expand our presence" Kiran Vasireddy, senior vice president at Paytm, told the BBC.

Payment revolution
Other mobile wallets like Mobikwik and Freecharge have also reported a huge jump in new customers.

But it's not just mobile payment firms who are trying to woo consumers.

Indian banks are also encouraging people to go cashless by using online banking and mobile apps services. Financial technology firms are seeing the rupee ban as a start of a digital payment revolution in the country.

Paytm came out with full-page advertisements in newspapers, congratulating the prime minister for taking the "boldest step in the financial history of India".

What is fuelling this optimism is that India is the second largest market for smartphones behind China. This has coincided with a rapid rise in internet users. The country presently has more than 450 million internet users, a number expected to touch 700 million by 2020.

Image copyrightGETTY IMAGES
Image captionMillions of Indians have been queuing up at banks to withdraw cash
But despite this sharp uptick in mobile and online payments, this overall user base is still very small for a country with a population of 1.25 billion people. And India still has a long way to go to before it can become a major cashless economy.

Most people only like dealing in cash. This is a mindset issue that will take a lot of time and effort to change.

And with more than half of India's population residing in rural areas where mobile coverage is still patchy, this task becomes even more daunting.

Restricted use
Even though India has successfully opened millions of banks accounts over the last two years to get more people into the financial system, a huge portion of the population still has no access to banking services.

The country has more than 24 million credit cards and 650 million debit cards. The number of debit cards has been growing steadily but most people only use them to withdraw money from ATMs instead of using them to make payments.

Image copyrightGETTY IMAGES
Image captionMajority of Indians like to make payments in cash
"You need more small businesses to buy devices that will accept debit and credit cards. Most of them want cash," says Vivek Belgavi, a financial services expert with PricewaterhouseCoopers India.

While businesses in the cities are gradually moving to cashless modes of payments, their counterparts in smaller cities and towns are reluctant to do that. They still do not understand the advantages of digital transactions. There is also a perception among a lot of Indians that internet and mobile transactions are not secure.

Many experts say that the key task once the cash situation normalises will be to retain customers that have switched to cashless payments in recent days.

 

[tranquilium]

Eh, Modi's idea has merit in some sense, but the practical implement basically says it will end in tears. There are several rather important factors to consider:

1. During the 2015 world bank report, it is stated that the (then) India bank account penetration is roughly 53%. This means about 600 million people in India's population does not have a bank account. Since service penetrate typically follows a reverse parabola (which means the initial penetration is slow, but then speed up drastically and then slow down again), there is a high possibility that a large portion of India population do not have a bank account.

2. As of 2011, India has a house hold power penetration of 67.2%. This means a lot of necessary support infrastructure for a cashless society simply isn't there.

Basically, disregarding the true motivation of Modi's move, there is a lot of rather large difficulties just from the aspect of practical implementation.

 

[Echo_419]

Eh, Modi's idea has merit in some sense, but the practical implement basically says it will end in tears. There are several rather important factors to consider:

1. During the 2015 world bank report, it is stated that the (then) India bank account penetration is roughly 53%. This means about 600 million people in India's population does not have a bank account. Since service penetrate typically follows a reverse parabola (which means the initial penetration is slow, but then speed up drastically and then slow down again), there is a high possibility that a large portion of India population do not have a bank account.

2. As of 2011, India has a house hold power penetration of 67.2%. This means a lot of necessary support infrastructure for a cashless society simply isn't there.

Basically, disregarding the true motivation of Modi's move, there is a lot of rather large difficulties just from the aspect of practical implementation.

On the Finacial inclusion front, we are working on war footing, for example, the Prime Minister's Finacial inclusion scheme has managed to provide bank accounts to Hundreds of millions of family and millions more will be provided with a Bank account in a couple of years, 2 years I think.

Also, all you need is a basic phone for digital banking, even a CDMA phone will work with SMS banking. What people are not able to understand is that Modi and his team have shifted their focus to fixing the Structural problems of the economy from maximising GDP growth.