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India’s demonetisation – taking the bull by the horns

I seem to find most of the truly exciting stories these days are happening in unexpected places.  Tanzania, Indonesia, Turkey, China, Brazil … and specifically India.

I wrote a fair bit about the demonetisation program in India at the beginning of December, saying that it’s a laudable objective but a flawed one, as 95% of the Indian population aren’t using mobile payment systems today and 88% haven’t even heard about it.  That’s all changing though, thanks to further government intervention.

Akhil Handa, Advisor to the Managing Director and CEO of Bank of Baroda, wrote a great piece about this at the end of 2016, summarising the state and regional bank programs to support demonetisation.  These include discounts when buying fuel or train tickets, free insurances, prize draws and more if the merchant and customer use a digital payment method.

This is combined with a range of educational initiatives to give people better understanding of how to use digital payment methods.  These include:

  • The Ministry of Electronics and IT campaign called Digi Dhan Abhiyan, which will enable every citizen, small trader and merchant to promote digital payments in their everyday financial transactions;
  • The Ministry has also launched a free-to-air TV channel called DigiShala, which will impart information in rural and semi urban areas on digital payment ecosystem;
  • There’s a free 14444 helpline that anyone can call to get answers to questions;
  • Schools and colleges are running immersive workshops to train students in how to use digital payment methods;

… and there’s lots more.  About 30 major initiatives to ease the pain of demonetisation are under way.  One of the most notable is the government’s launch of its very own digital payments app supported by most of the banks operating in India (see end of blog for current list).

Called BHIM (Bharat Interface for Money), the app is an initiative to enable fast, secure, reliable cashless payments through mobile phones. BHIM is interoperable with the Unified Payment Interface (UPI) applications and bank accounts, and has been developed by the National Payment Corporation of India (NPCI).

To use BHIM, you just register your bank account, set up a UPI PIN and use your mobile number as your payment address. Then you can simply start transacting. Yes, it is that simple.

Features include:

Send / Receive Money: Send money to or receive money from friends, family and customers through a mobile number or payment address. Money can also be sent to non UPI supported banks using IFSC and MMID. You can also collect money by sending a request and reverse payments if required.

Check Balance: You can check your bank balance and transactions details on the go.

Custom Payment Address: You can create a custom payment address in addition to your phone number.

QR Code: You can scan a QR code for faster entry of payment addresses. Merchants can easily print their QR Code for display.

Transaction Limits: Maximum of Rs. 10,000 per transaction and Rs. 20,000 within 24 hours.

For more information: visit https://upi.npci.org.in/static/faq/en_US/  and there’s also a couple of good articles about the launch in the Indian Express and Tech In Asia online write-ups.

What I find interesting here is that the government is launching initiatives to get Indian citizens to go cashless and supporting the existing digital payments players out there, the largest of which is Paytm.

Paytm in India is like Venmo in the USA – it’s a verb in India just as Venmo is in America – and it’s also the largest mobile payment wallet in the country.  What is intriguing in the latest filings by Paytm on its usage, showing the average balance held in the wallet has increased three-fold since demonetisation.  In September, the average balance was Rs22 ($0.32), but it now Rs59 ($0.87).   The app is now being actively used by 17 crore (170 million) people, which is big but a long way to go in a country of 1.3 billion people (41% are under the age of 18).  Mind you, 2 crore (20 million) new Paytm accounts are in use today than just three months ago, so it is a preferred payment system.  It’s not the only one though with MobiKwik, PayUMoney and Oxigen also on the market and popular in different ways.

Meanwhile, the government isn’t stopping at promoting, educating and supporting digital payments; they’re also forcing interoperability, standards and industry rationalisations.  For example, at the beginning of December 2016, they made a request (order?) that RuPay, MasterCard and Visa share a common QR code system for everyone to use.  The idea is that merchants will display the common QR code, which can be scanned using a smartphone app linked to any of the three payments networks, and the money will be directly transferred by a buyer to the merchant’s account. Such QR-code based payments will not require a physical card.  This is a direct push against Paytm, which also allows QR code payments but in a closed-loop system.

Combine these initiatives with another from the State Bank of India (SBI), who announced last week that they would scrap transaction charges for India’s smaller businesses and merchants, and you can really see that India’s transformation from physical cash to digital payments is a phenomenal story.  The government has pushed hard to make it happen and given all the tools and mentoring it can to force this through. The result, according to some, is that in the next two-and-a-half years, India will make all its debit cards, credit cards, all ATM machines all POS machines totally irrelevant.

However, you still should ask if the country is ready for it.  In 2005-2006, 97% of Indian consumer payments were made in cash and only 3% was digital.  Today, the numbers are still about the same.  Perhaps this Draconian crackdown on cash usage is a government ambition, but potentially an economic disaster?

According to a report by The Economistit is likely to have a significant but not catastrophic impact. Annual GDP growth forecasts for the fiscal year ending in March 2017 have slipped by around half a percentage point, to under 7%, from an actual rate of 7.3% in the last full quarter before demonetisation. This has to bear in mind other factors too, such as the rise in the oil price and the surge in the value of the dollar after the election of Donald Trump, are also at play.



You can find out more about the Indian cashless vision via this presentation at India Stack.

The BHIM app is currently supported by:

  • Allahabad Bank
  • Andhra Bank
  • Axis Bank
  • Bank of Baroda
  • Bank of India
  • Bank of Maharashtra
  • Canara Bank
  • Catholic Syrian Bank
  • Central Bank of India
  • DCB Bank
  • Dena Bank
  • Federal Bank
  • HDFC Bank
  • ICICI Bank
  • IDBI Bank
  • IDFC Bank
  • Indian Bank
  • Indian Overseas Bank
  • IndusInd Bank
  • Karnataka Bank
  • Karur Vysya Bank
  • Kotak Mahindra Bank
  • Oriental Bank of Commerce
  • Punjab National Bank
  • RBL Bank
  • South Indian Bank
  • Standard Chartered Bank
  • State Bank of India
  • Syndicate Bank
  • TJSB
  • UCO Bank
  • Union Bank of India
  • United Bank of India
  • Vijaya Bank
  • Yes Bank Ltd


About Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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