Journey Towards Cashless Economy Part 1

The objective of this 3 part series is to examine in brief the barriers and motivators for the key players in (the author believes it has elements that can stand true for any economy that intends to go cashless) Journey towards a cashless society (India as a example).

As per the annual report of Reserve Bank of India (RBI) for 2013-14, the amount of currency in circulation stood atRs.12.83 trillion with a compounded annual growth rate of 10% over the past two years. About 5% of the amount is with banks. This implies that almost the entire amount is in daily circulation, which is reflected in the Rs.32.1 billion cost of just printing the notes.

The overall benefit of migrating to cashless even by liberal estimates is 0.8 % on GDP in emerging markets.

Key players in this Journey are

1. Retailer (Point of Sale)
2. Consumer
3. Business (Issuers/Acquirers)
4. G2P and P2G payments.

 Retailer (Point of Sale): In digital economies the POS terminal penetration stands between 30-50 terminals per 1000 person while in India it is .9 terminals per 1000. Arguably it can be said that the presence of POS terminals is directly proportional in driving the business and consumer cashless (Though it does suffer from the chicken and egg phenomenon).

 At the current stage in Indian economy below mentioned are the barriers and motivators which if addressed suitably can catalyse the growth in terminals.

 Barriers

• 2 Factor Authentication (For payment’s less than Rs. 2,000): For all retail consumer payments (Grocery / Mass Transportation/ Restaurant/ Local travel by Taxi/Cab) the need for 2 factor authentication increases the chances of drop in transaction processing.
• Interoperability of wallets: The ability to pay from one wallet (m-pesa) to another wallet (Paytm).
• Parallel cash economy: 25.1 % was the size of parallel economy as per 2006 (World bank research) estimate, most experts (as per newspaper reports) believe today it will be in the range of 30-35 %. The disadvantage in making the unaccounted (no tax liability) money account is a big road block in retailer participation.
• Poor digital ecosystem beyond tier 1 cities
• Cost of Devices and Rentals: The current cost of devices range’s from Rs. 5-10 k dependent upon the type of instrument, also in cases of small retailers the device company charges for a monthly rental.
• Lack of activated (Debit card) consumers in Tier-II and Below: A large portion of consumer’s have received debit card in recent times however the lack of handholding to ensure usage has resulted in non-active debit cards.

  Motivators and Catalyst’s

• Tax Incentives: Globally Tax incentives are considered as one of the key influencers in getting an outlet started to accept digital means of making payment.
• Existing Infra usage : Ability to transact on exiting POS / mobile phones for all type of new payment instruments
• Safe, Secure and seamless: Digitised cash is more secure, auditable, safe and flows seamlessly in the bank account.
• Incremental Footfall: Resulting in greater business.
• Loans: Loan against card receivables can provide working capital during the period when it is needed the most.

Clearly a switch providing interoperability among various type of wallets is observed as the biggest enabler in making it financially viable business model for the retail point of sale.

This article is written to share author’s personal opinions on the cashless journey and in no way represent the views of the organizations for which I work.