Growing digitisation is a warning to cash: BCG

Says about 30-40% of cash in circulation now will be replaced with digital transactions

With digitisation gaining ground, it is likely that going ahead about 30-40% of cash in circulation will be replaced by digital transactions, says a report by Boston Consulting Group (BCG)

 

"Paper money, that has dominated transactions for centuries, could be on its way out. We see the warning to cash. There is a clear possibility of 30-40% substitution of cash in circulation in India with digital transactions," said the report.

 

Banks have been working at making the branches and backends more digital. Experts believe that this will not only boost productivity but proper use of technology can also be a important factor in trimming the increasing bad loans that the banking sector has been battling with. 

 

"By digitising processes end-to-end, engaging customers on digital channel for sales and transactions, and collectively working towards eradication of cash, banks can achieve up to 30% jump in sales productivity, reduce administrative staff by 10-15% and improve back office staff productivity by 20%," added the report.

 

BCG believes that banks that have a strong control over the payments system in the industry will be more successful in the process of digitisation. This is because going ahead most of the payments growth is likely to be on the digital channel such as internet, mobile, POS, ECS etc. Going ahead these channels are expected to serve specialised purposes and the global consulting firm sees it as a "tectonic paradigm shift."

 

The report points out that the competitiveness of PSBs can further decline until and unless concerns like talent constraints and overarching control in terms of decision making is addressed. In fact, BCG believes that the smaller public sector banks are at a greater risk. 

 

"The smaller public sector banks are at a particular risk of rapid decline given their poor investment in transformation. They lag significantly on virtually every dimension of digital preparedness. In our view, this should be a primary consideration in the blue print for consolidation of public sector banks in India," stated the report.