Demonetisation changed India's cash habits? Not quite, but UPI a big hit

Joginder Sharma, who owns a small textile dyeing unit in Panipat, Haryana, bought a point-of-sale (PoS) machine, learnt how to operate a mobile wallet and make electronic fund transfers just two years ago. For three months after demonetisation, Sharma did business via every possible digital means. However, as cash made its way back into the system, Sharma too resorted to his old ways.

“Cash is easier to handle, people get paid then and there. No one likes to carry cards around here. We get paid in cash and we prefer to pay in cash as well,” he says.

Sharma is not alone. Though demonetisation was supposed to turn India into a less-cash economy, two years on, people, especially in tier II and tier-III cities, continue to prefer cash over digital payments. For many, electronic payments are cumbersome. “It is a complete change in the way of doing business and many do not want this change. Moreover, even today, the economy in smaller towns is primarily cash-based. PoS machines are few, mobile phone connectivity is poor, and so it is tough for us to breach these barriers,” says a senior vice-president of a New Delhi-based mobile wallet firm.

While digital transactions may have increased compared to last year, experts believe that the usage of digital money, other than in the metropolitan and the 50 top cities, is still minimal.

Digitisation equals mobile wallets?

On November 9, 2016, the day after Prime Minister Narendra Modi’s note ban announcement, mobile wallet major such as Paytm and Freecharge carried full- page jacket advertisements in leading dailies, lauding the PM’s move. Thanks to demonetisation, digital money in the country seemed to have finally got a huge push. 

Companies like Paytm, Freecharge, MobiKwik or Oxigen wanted the first- mover advantage and spent over a billion dollars acquiring close to 500 million users. However, after cash came back into the monetary system, these mobile wallets have turned into portals for millennials to buy movie tickets, pay for cabs, order food and so on. “People equate digitisation of cash to these mobile wallets. The moment cash came back, they just became portals for deal seekers, and that too in metros and bigger cities,” said an analyst with a international consultancy.

Many have even stopped calling themselves digital wallets and changed their business models. For example, Oxigen Services has decided to move to providing financial services via micro-ATMs.

“We are now getting into corporate expense management, making universities cashless as well as working with transport companies for cashless plying of trucks and commercial vehicles,” Ankur Saxena, vice-chairman and CEO, Oxigen Group, said.

But there are those who insist that the going has been great ever since the note ban. “MobiKwik’s frequency of active users zoomed 100 per cent post demonetisation. We have been growing 300 per cent year on year over the last two years. We are the second largest consumer payments company with a user base across top 50 cities in India. The tier-II and tier-III cities are the key growth drivers for us and we see them contributing to the growth of the financial services business in a big way,” said Upasana Taku, co-founder and director, MobiKwik.

However, the Confederation of All India Traders (CAIT), which organised as many as 300 workshops and conferences to promote digital payments in the wake of demonetisation, claims that much more needs to be done to take the initiative forward.

“Providing incentives for digital payments both by traders and consumers as also policy decisions to bring ease of usage are lacking. The charges levied by banks on digital payments are a major deterrent as neither the trader nor the consumer wants to pay them. Bank charges should be subsidised and the  government should directly pay these charges to the banks,” said Praveen Khandelwal, secretary general, CAIT.          

UPI a hit

The digital payments platform that has clearly made giant strides since the note ban is the Unified Payments interface (UPI) which was launched in August 2016. According to data released by the National Payments Corporation of India (NPCI), UPI transactions have skyrocketed from a mere 30 million transactions in September 2017 to 405.8 million in September 2018. In fact, last month the transactions shot up further to 482.3 million, accounting for Rs 749 billion in value terms. In the last one year the monthly UPI transaction volume has gone up by a staggering 2,000 per cent.