Cash is back in India, but for how long?

There’s no doubt that consumers in the east are at the forefront of digital innovation. A recent KPMG report on fintech in the APAC region shows that venture capital-backed investments in fintech companies reached $1.2 billion in the third quarter of 2016, which accounted for approximately half of all such funding globally.

However, India’s road to a cashless society may be longer than industry experts had hoped for.

To further push the economy towards a digital revolution, in November last year, Indian Prime Minister Narendra Modi shocked the nation by announcing the existing 500 and 1000 rupee notes would become practically invalid overnight.

Modi removed 86% of his country’s currency from circulation by announcing both notes would be taken out of circulation. The sudden demonetisation was justified as a bid to curb tax evasion, corruption and shut down the so called ‘black money’ economy. Millions of Indians lined up to deposit their cash into their banks.

A recent Bloomberg article states that as Indians sought ways around the shortages, and the value of digital payment transactions surged to a record 150 trillion rupees in March, according to central bank data. This was up from about 94 trillion rupees in November, when the old notes were voided.

Companies such as Moneyonmobile aim to tackle the digital revolution in India by providing a service for those that are unbanked to utilize sending money the same way as their peers. The business facilitates easy and secure financial transaction amongst millions of Indian consumers.

Amit Dua, President of Suntec Business Solutions, states that everybody is aware that digitalisation is happening quickly around the world, and that the core banks won’t need as many branches as they have. “It’s all about collaboration,” he says. “There’s a value that banks offer where they’re a brand and have the trusted customer relationship.

“Most people when asked the question: “Where do you think your money is the safest?”, they will reply “in banks”.

“In general, my sense is that is the cashless society will really flush out the black money out of the economy and bring it back into the legitimate economy, so it’s a good thing,” says Dua.

“Those who were keeping cash turned into the highest network individual accounts within a month since the demonetisation announcement. The first challenge here is to create stickiness with these people because nothing guarantees that by tomorrow morning they can take all of that cash out the account and deposit it into another bank. People are essentially trying to beat the system,” comments Dua.

The acceptances of digital payments are inevitably correlated with the strength of the digital infrastructure. Until 2009, almost half of the Indian population did not have any form of identification.

The Aadhaar card was launched in the same year to create a biometric database, authenticated by fingerprints and iris scanning.

And now, it’s the largest database in the world now, with 900 million of the 1.3bn Indians registered with an identity card.

However, the cashless society remains pending as retailers and consumers have turned back to the use of cash. The benefits of going cashless provide greater speed and convenience for corporates and consumers, but whether this is sustainable for businesses and consumers in India remains to be seen.

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