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Is India’s Demonetisation Decision The Biggest Disruption For Electronic Payments In 2016?

As we in India celebrated New Year’s Eve, 2016, it wasn’t lost on anyone that the magnitude of the withdrawal of 86% currency in circulation on India and the world, would be analyzed and felt for a long time to come. We turned into hear PM Modi’s address to the nation on NYE- Thanking its citizens and announcing a slew of lost cost housing incentives to begin 2017.

While India and the Impact of Demonetisation continued to hog headlines even after Dec 31st 2016, including in the just concluded World Economic Forum at Davos, the overall sentiment has swung like a pendulum between those hailing the move as revolutionary while others labeling it as a disaster.

India, however, being at the cusp of a major growth phase has since become a case study to analyse the impact that demonetisation will have both in the short term and long term vis-a-vis economic growth, switch to cashless behavior and curbing a thriving parallel gray market.

Globally, anywhere else, there has been almost no disruption in payments and financial systems as #DeMo has been. An unprecedented move in the largest democracy in the world has largely been peaceful and triggered nationalist sentiment as the primary reason for the mass support. Hence, In my view the greatest disruption in Digital anywhere in the world in 2016 has been in India and here are 3 reasons I believe makes #DeMo the winner

1.      Strong Policy and Regulatory Support by Government of India (GOI)

a)   The finance ministry on 8th Dec, 2016 announced an Incentive Package for Promotion of a Digital and Cashless Economy thereby motivating Indians to adopt cashless transaction methods. Interestingly, each measure was carefully crafted to target consumers in the biggest expenditure and growth channels for electronic payments such as: Fuel and Rail Tickets.

b)  Promoting Merchant Acceptance by removing ~16.5% excise duty on POS machines

c)   Setting targets for POS deployment with top acquirers in the country followed up with careful monitoring

d)  No service fees/service tax on Digital transactions less than 2000 INR

Spot professionalism, diligence and long term commitment? Very unlike a government and almost in startup mode, is how many perceive this.

2.      Demographic Dividend of Young India Adopting a Digital Lifestyle

a)   Nearly 54% of India is less than 25 years old while 27.6% is in the age group of 25-44

b)  India is the 2nd largest smartphone market and

c)   ‘Digital India’ continues to lay the ground to a more connected population

With digital being introduced, marketed and incentivised, a consumer behavior shift and adoption is highly achievable. There are more than enough barriers to digital adoption in India also, hence, it will be interesting to see how these are overcome with the

3.      Digital Literacy Drive, Digital Payments Helpline and Lucky Draw

a)   The Ministry of Electronics and IT (MEITY) started a new campaign called Digi Dhan Abhiyan to promote cashless transactions by enabling every citizen, small trader and merchant to learn about digital payments.

b)  A helpline number 14444 is also set up to answer queries with trained customer service personnel available.

c)   The sweetest move however is the lottery with weekly & quarterly winners getting sums ranging from 1000 INR to 10 Million INR

These consistent efforts to mobilise masses through education will go a long way to underline the ease and convenience of digital payments leading to increased trust and adoption of cashless methods for payment.

Do you agree with my assessment? Would love to hear your feedback.

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About me: This article expresses my personal views, and not those of any of my employers — past, present or future.



Comments: (2)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 31 January, 2017, 17:581 like 1 like

As the cash crunch has eased, I've seen many people going back to cash. Unanimous reason of around 15 people I polled being cash is frictionless.

I've been personally disappointed by the lack of enforcement of the government's policies at the ground level. Over a year ago, the government said payments made by Debit Cards or Credit Cards or Internet Transfer to government agencies and Public Sector Undertakings would attract no surcharge. This commitment was reiterated after #DeMo. However, I know at least two PSUs that still continue to levy 1-2% surcharge on digital payments. As a result, if I pay them digitally, I incur a higher cost.

As a consumer, I don't care what MDR is charged by issuer banks to merchants but I definitely expect the government to ensure that, regardless of whatever MDR, a consumer shouldn't have to incur a higher cost for making digital payments compared to cash. I think the success or failure of the government's drive for #CashlessIndia will largely depend on how the government manages this issue.

Historically, merchants in developed countries started accepting card payments widely despite MDR and without surcharge because (a) they'd lose business otherwise (b) card payments make consumers spend more, both of which are benefits for merchants. This is an old insight but I'm amazed that banks are just not propagating this message widely enough in India, thus leaving it to the consumer to fight it out with merchants to avoid the latter trying to pass on MDR as surcharge.

James Piggot
James Piggot - Finastra - London 01 February, 2017, 09:171 like 1 like

There is a cost to handling cash that presumably is not being passed on to merchants hence they prefer cash over digital payments?

The other benefit of digitalisation is providing banking services to the unbanked sectors of the population?


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