Demonetisation- Two years on, digital payments on the rise but cash still king

One of the objectives of demonetisation was to move to a ‘less-cash’ society. However, two years later, it appears that cash still remains the king.

According to data from the Reserve Bank of India (RBI), the amount of currency in circulation rose to Rs 19.6 lakh crore as on October 26, 2018, a 9.5 percent growth from two years ago. The currency in circulation was Rs 17.9 lakh crore on November 4, 2016, the week before the note ban came into force.

With cash back in the system, ATM withdrawals have also picked up.

As per RBI data, cash withdrawals from ATMs grew 8 percent to Rs 2.75 lakh crore in August 2018, up from Rs 2.54 lakh crore in October 2016.

The October figure for this year, to be released in December, could well be higher, as withdrawals generally increase due to the festival season. Cash withdrawals from ATMs fell sharply during the demonetisation exercise, hitting Rs 1.06 lakh crore in December 2016.

However, at the same time, the addition of ATMs has been slow. In the last two years, about 8,000-odd ATMs had been added.

There are 205,665 ATMs in the country as of August 2018. This number has since come down from 206,254 July 2018, RBI data showed.

This number has been steadily declining from 207,052 as of the end of March 2018, as compared to 208,354 on March 2017.

Digital payments

However, digital payments, in general, have picked up, helped by the large technology companies entering the fray and platforms like the unified payments interface (UPI) becoming popular through existing and new apps.

Mobile banking transactions in August 2018 stood at Rs 2.06 lakh crore, 82 percent higher than the October 2016 figure of Rs 1.13 lakh crore, according to RBI.

As per the Reserve Bank of India (RBI) annual report released in August end this year, all payment and settlement systems - NEFT, IMPS, UPI, NACH, card payments, Electronic Clearing Systems as well as forex and market clearing systems – have seen a 44.6 percent increase in volume in 2017-18 and an 11.9 percent increase in the value of funds transferred.

The digital retail payment infrastructure, which includes card payments, UPI and others increased to 92.6 percent in 2017-18, up from 88.9 percent in the previous year.

"The innovation landscape in payments is uncertain as BigTech entrants make their presence felt, and incumbents face technical and regulatory complexity in the development of new collaborative payments ecosystems between themselves and FinTechs," said a recent study called "World Payments Report 2018" by IT major Capgemini and BNP Paribas.

In the past year, Google has launched its payment app called Pay (earlier Tez) in India, while Whatsapp is running a beta version of its payments system. Incumbent e-wallets like Paytm and Mobikwik still continue to be accepted as well.

The report forecasts that non-cash transactions will post a compound annual growth rate (CAGR) of 12.7 percent through to 2021.

It is important to note that there is no clear data available on the demographics of the users.

The unorganised sector in urban areas such as the neighbourhood kirana (grocery) shop, the vegetable vendor, local florist, all still largely prefer to deal in cash.

“I use a smart phone but I am still not comfortable using online wallets. I don't understand e-transactions. If I have to shift making my payments through the digital method, I have to hire another person which will only increase my costs. Come what may nothing can be as convenient as cash,” said Rakesh Anand, a small shop owner in Sector-30, Noida.

While Internet connectivity and data cost are no longer issues, trust in electronic systems and lack of accountability in digital systems is often cited as a hindrance to mass use.