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View from India: Cashless economy ahead

India is moving towards being a cashless economy. Ever since the Government of India (GoI) announced its decision to scrap five hundred and one thousand rupee notes in November 2016, it has accelerated a slew of activities - the most obvious being that of citizens queuing up at nationalised banks to deposit old notes.

Going completely digital is a new, untapped market for India. “The stock of currency is being replaced by cashless transactions. A policy window is being opened out to bring the government, regulators, markets, technology and innovation together to create a modern digital financial economy. All this is backed by solutions like Aadhaar and ATMs,” said Nandan Nilekani, former chairman of the Unique Identification Authority of India (UIDAI), speaking at the Global Technology Summit 2016, from Carnegie India, a public-policy think-tank. 

The government, along with regulation, technology and markets need to collaborate to pave the way for a cashless economy in times to come. “The government’s move begins the long march towards a formal economy and will lead to greater financial inclusion across India through the use of digital payments,” added Nilekani.

Domestic services along with payments infrastructure such as the Aadhaar number, Unique Payment Interface (UPI), microATMs and Unstructured Supplementary Service Data (USSD) will be leveraged to encourage people to migrate towards cashless payments.

“Around 350 million people still use feature phones. For them USSD will be the means for cashless payments. About 300 million people in rural India don’t even have the feature phone. MicroATMs will come in handy for this category,” highlighted Nilekani. E-KYC (electronic know your customers) can be used as a strategic tool to time-to-market the concept of digital payments to this section of consumers. Transactions for both categories of people are expected to change.

Old money - i.e. cash - will be replaced by new money, which is cashless. Mobile wallets (m-wallets) are vying for a slice of the digital pie, as over 70 per cent of the citizens use mobiles to access the Internet in India. Up to now, credit and debit cards have been designed for the more well-off users. The m-wallet is positioned for every segment of society.

What is more, India already has over one million mobile subscribers, so the digital payment system has cracked the volume game. The cashless digital footprint is expected to unleash new ideas for app developers. Fresh competition is anticipated to come from startups as they position themselves in this new money economy.

Banking has primarily been perceived as a high-value, low-volume business, but in the case of m-wallets the business model is quite the opposite. Financial institutions have earned revenue by transacting fees, but for mobile wallets, the source of revenue comes from the data. It means data will be used for mass inclusion of the population to access cashless transactions.

In the traditional cash world, cash was printed in four locations in India and it was a sovereign function. Looking ahead, digital finance is essentially a tech-driven function which is now being executed by private companies.

The cashless economy is a revolution expected to trigger ripples of apprehension. The truth is that all consumers (both first-timers and existing users) are concerned about safeguarding their accounts from cyber crimes and phishing. In view of this growing anxiety, the government has stepped in to launch ‘DigiShala’, a Doordarshan free-to-DTH channel.

The channel will throw light on the procedures involved in digital payment, along with its benefit to people in the rural and semi-urban areas. DigiShala will be available through GSAT15 (DD Direct DTH), 93.5 degree east, receive frequency 11590 Mhz.

Digi Dhan Abhiyan is a campaign floated by the Ministry to encourage small traders towards digital payments. The marketing blitzkrieg will also run in partnership with the central and state governments.

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