The word demonetisation became a part of everyday vocabulary on November 8, 2016. Before that day if you had asked the common man what it was he would respond with a shrug. Ask him now what it means and he will not only tell you what it means but also what he thinks about it. This is because the country was sent into a tizzy on November 8, as Prime Minister Narendra Modi announced that come midnight, Rs 1,000 and Rs 500 currency notes would become invalid.
In his 40-minute speech, Modi said that this was done to weed out black money and to promote a less cash economy. A year has passed since then and according to the Reserve Bank of India (RBI), 99% of the demonetised high value currency notes have come back into the banking system. But what about increasing the usage of digital payments? Have we, as a country, reduced our dependence on cash?
In November 2016, a total of 523.23 million cashless transactions took place worth Rs 93.63 lakh crore and by March it was 682.45 million transactions amounting to Rs 150.24 lakh crore. Now, coming to cash, as on October 2017, the total cash in circulation was a whopping total Rs 1, 31, 81, 190 crore and the total currency with the public was Rs 15, 32, 850 crore. All of us together have put in money worth Rs 1,03, 65, 840 crore in time deposits with banks. And cashless forms just 5 per of all the transactions in India.
Why do Indians love cash?
All stakeholders are to blame; right from regulations, digital payment infrastructure, to the mind sets of the people. "The government needs to keep putting pressure on all stakeholders to make sure that digital payments are accepted more. We are one of the few countries where the usage of cash is incentivised.
One big hindrance and misconception is that fact that digital payments is viewed as a tool meant for the educated and that it is not easy to use. You can still find people struggling to withdraw money from an ATM - and this is something many of see as basic banking.
Then there is the fact that there you cannot use cashless modes of payments at many merchant outlets even now. There are 81 crore debit cards in India and just 28.82 lakh point-of-sale (PoS) terminals. Go to the local market, how many the local merchants will use your debit or credit card or use something like a Paytm? If in the metro cities this is the case, imagine smaller towns and rural areas?
And even in outlets where there are PoS terminals, electronic payments are discouraged for small value transactions. This is something even the central bank noted in a concept paper on card acceptance infrastructure released in April 2016. "Along with the measures to increase availability of card acceptance infrastructure it is also essential to ensure that cards payments are accepted seamlessly for all types of payments irrespective of amounts.
The government has been trying to increase the reach of digital payments by introducing payments of tolls, train tickets, and so on using apps and smart cards. But it is yet to catch on in a big way.
Security and lack of quick redressal mechanisms is another concern. Hackers and tricksters get smarter as we get more dependent on electronic modes of payments. Late last year, between May and June, 3.2 million debit cards across India were compromised due to malware. The breach was only detected in September 2016. News of scams and frauds is not uncommon. This will only further deter more people from coming on board the electronic payments bus.
And when a fraud does take place, it is not a very pleasant experience to get your hard-earned money back. In general, getting your grievances addressed by banks is rather unpleasant and tedious. And with the RBI still coming out guidelines and banks putting systems in place, getting your grievance regarding a digital payment transaction getting resolved will not be that easy.
The RBI has taken a step in the right direction by coming out with notification on, Customer Protection - Limiting Liability of Customers in Unauthorised Electronic Banking Transactions. The notification puts the onus on the banks to prove a fraudulent activity and lays out the customer's role in informing the bank about a wrongful transaction in his account. Banks and financial institutions are also doing their part by increasing awareness among customers, especially in smaller towns. We will have to wait and watch how banks and the RBI will go ahead from here on to tackle customer protection when it comes to electronic payments.
Way Ahead
Indians are taking baby steps towards a less cash economy, but a lot needs to be done in the meanwhile. After November 8, many have stopped keeping large sums of cash at home, and at least in the cities people (both young and old) are increasing their usage of electronic payments. Financial inclusion is a big problem in India what with our large unbanked population. If we want to increase the usage of digital modes of payments, the government, regulators, and financial institutions need to come up with solutions that takes care of all sections of the society.
"In a market like India, where regulations are still evolving, it is imperative that the government and regulators take a long-term view to building a sustainable digital payments market. Regulators need to emphasize awareness on cost of cash and incentivize the use of noncash instruments, while the government needs to shape policy that simplifies KYC requirements, making digital payment transactions more user friendly. Government investments in building merchant acceptance networks, setting up common payments infrastructure and developing a proper framework for grievance redressal are also essential.
In his 40-minute speech, Modi said that this was done to weed out black money and to promote a less cash economy. A year has passed since then and according to the Reserve Bank of India (RBI), 99% of the demonetised high value currency notes have come back into the banking system. But what about increasing the usage of digital payments? Have we, as a country, reduced our dependence on cash?
In November 2016, a total of 523.23 million cashless transactions took place worth Rs 93.63 lakh crore and by March it was 682.45 million transactions amounting to Rs 150.24 lakh crore. Now, coming to cash, as on October 2017, the total cash in circulation was a whopping total Rs 1, 31, 81, 190 crore and the total currency with the public was Rs 15, 32, 850 crore. All of us together have put in money worth Rs 1,03, 65, 840 crore in time deposits with banks. And cashless forms just 5 per of all the transactions in India.
Why do Indians love cash?
All stakeholders are to blame; right from regulations, digital payment infrastructure, to the mind sets of the people. "The government needs to keep putting pressure on all stakeholders to make sure that digital payments are accepted more. We are one of the few countries where the usage of cash is incentivised.
One big hindrance and misconception is that fact that digital payments is viewed as a tool meant for the educated and that it is not easy to use. You can still find people struggling to withdraw money from an ATM - and this is something many of see as basic banking.
Then there is the fact that there you cannot use cashless modes of payments at many merchant outlets even now. There are 81 crore debit cards in India and just 28.82 lakh point-of-sale (PoS) terminals. Go to the local market, how many the local merchants will use your debit or credit card or use something like a Paytm? If in the metro cities this is the case, imagine smaller towns and rural areas?
And even in outlets where there are PoS terminals, electronic payments are discouraged for small value transactions. This is something even the central bank noted in a concept paper on card acceptance infrastructure released in April 2016. "Along with the measures to increase availability of card acceptance infrastructure it is also essential to ensure that cards payments are accepted seamlessly for all types of payments irrespective of amounts.
The government has been trying to increase the reach of digital payments by introducing payments of tolls, train tickets, and so on using apps and smart cards. But it is yet to catch on in a big way.
Security and lack of quick redressal mechanisms is another concern. Hackers and tricksters get smarter as we get more dependent on electronic modes of payments. Late last year, between May and June, 3.2 million debit cards across India were compromised due to malware. The breach was only detected in September 2016. News of scams and frauds is not uncommon. This will only further deter more people from coming on board the electronic payments bus.
And when a fraud does take place, it is not a very pleasant experience to get your hard-earned money back. In general, getting your grievances addressed by banks is rather unpleasant and tedious. And with the RBI still coming out guidelines and banks putting systems in place, getting your grievance regarding a digital payment transaction getting resolved will not be that easy.
The RBI has taken a step in the right direction by coming out with notification on, Customer Protection - Limiting Liability of Customers in Unauthorised Electronic Banking Transactions. The notification puts the onus on the banks to prove a fraudulent activity and lays out the customer's role in informing the bank about a wrongful transaction in his account. Banks and financial institutions are also doing their part by increasing awareness among customers, especially in smaller towns. We will have to wait and watch how banks and the RBI will go ahead from here on to tackle customer protection when it comes to electronic payments.
Way Ahead
Indians are taking baby steps towards a less cash economy, but a lot needs to be done in the meanwhile. After November 8, many have stopped keeping large sums of cash at home, and at least in the cities people (both young and old) are increasing their usage of electronic payments. Financial inclusion is a big problem in India what with our large unbanked population. If we want to increase the usage of digital modes of payments, the government, regulators, and financial institutions need to come up with solutions that takes care of all sections of the society.
"In a market like India, where regulations are still evolving, it is imperative that the government and regulators take a long-term view to building a sustainable digital payments market. Regulators need to emphasize awareness on cost of cash and incentivize the use of noncash instruments, while the government needs to shape policy that simplifies KYC requirements, making digital payment transactions more user friendly. Government investments in building merchant acceptance networks, setting up common payments infrastructure and developing a proper framework for grievance redressal are also essential.
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