What explains sudden surge in mobile wallet transactions before note ban?

The number of mobile wallet transactions surged by 30 million in October

While the number of PPIs transactions in September stood at 97 million, it shot up to 127 million in October. In November, the number of transactions fell to 59 million with a total value of Rs 1300 crore. The RBI noted that the November data pertains only to the sale of goods and services on PPI platforms (like the purchase of merchandise on mobile wallet offering websites). And that the provisional data for November is for just eight PPIs and not the full universe.  In October, the value of these transactions stood at around Rs 6,000 crore.This explains the great slump in economic activity that followed the government’s demonetisation move. 
 

While analysts attributed this phenomenal rise to the festive season, a look at the use of such instruments in last year's festive season shows a different story. In September 2015, PPIs (mostly mobile wallets) clocked 58 million transactions. In October when the fetive season was in full swing, the transactions registered a marginal increase of 3 million to 61 million. This year, however, the number of transactions jumped 30 million between September and October with most of the increased transactions coming from mobile wallets. In the same period last year, although PPI transactions had increased, mobile wallet transactions had marginally dipped. 

Business Standard contacted RBI but hasn't evinced a response the time of going to press. 

December figures show that the value of transactions continue to be low through PPIs. Till December 17, the value of transactions was roughly Rs 1,200 crore. The only reason for these figures to rise by December 31 could be the increased spending through mobile wallets during the holiday season given that people’s access to cash is limited. 

The government’s digital transformation plan primarily rests on popular modes of electronic transactions like prepaid payment instruments ( mobile wallets), debit card uses (at points of sale) and electronic bank transfers through National Electronic Funds Transfer (NEFT) mechanism. 

NEFT transactions showed a marginal increase in volume and value by November as compared to April this year. In April, there were 112 million NEFT transactions with a total value of almost Rs 8.3 lakh crore. In November, the number of NEFT transactions increased by 11 million while the amount of money paid through such bank transfers also increased by Rs 48,300 crore. 

This enforced switch in the absence of cash to digital transactions is also evident when it comes to debit card transactions figures. The rise in volume and values of debit card transactions is what explains Jaitley’s optimism while quoting high numbers at his press briefing on Tuesday. The value of debit card transactions in November grew by an impressive 162% compared to March. For  the current month, upto December 17,  almost Rs 24,700 crore in debit card transactions have been conducted. With analysts predicting that cash shortage may continue till March next year, more people may be forced to use debit cards. This could again raise numbers of debit card usage during the period.  

While the government’s move to shift India to a less cash society is commendable, only time will tell if this shift was only a temporary change in payment behavior because people had no other choice in the face of economic disruption caused by demonetisation.