I’ve just spent a few days in India and the inevitable discussions around Aadhaar, UPI, demonetization and more came around. Y’all may know some of this as I’ve blogged about it before but the bit that I wanted to focus upon was the demonetization position.
In November 2016, Prime Minister Narendra Modi took what many considered to be an extraordinary action and banned 500 ($7) and 1,000 ($14) rupee notes. I wrote a fair bit about it at the time, and point you to this presentation if you want to know the basics of how India has a vision to move society from physical to digital money.
The thing is that India has moved in the last decade from a technological country of poor infrastructure to one of the leaders, with a strong government vision driving the whole thing forward. As Radhika P Nair writes on Your Story:
Better still, India is now finally becoming the centre of platform innovation in certain areas. India Stack is uniquely Indian. The entire fintech wave is riding on Indian technology and the digital environment that the country is in. With Aadhaar, India Stack and UPI, India is now the hotbed of digital innovation, especially in fintech.
And points to the boom of start-up tech firms across India changing the game. Data from industry body Nasscom shows that India is home to over 5,000 tech or tech-enabled startups, making it the world’s third largest start-up ecosystem. Last year saw the launch of over 1,000 startups. India is home to over 700 advanced tech startups and this segment is witnessing a growth rate of 25-30 percent.
According to the IMF, the Indian economy is already coming out of its doldrums post-demonetization after only just over a year, to becoming the world’s fastest growing leading economy once more.*
But there’s a hidden subtext in all this that I haven’t quite figured out. When demonetization was introduced, the headline was that it was to catch the criminal trading in large notes and yet, by September 2017, 15.4 trillion rupees ($242 billion) of 500 and 1,000 rupee notes had been returned to the central bank. That was over 99% of the bills in circulation. So, there weren’t that many being used for criminal intent, some say. In fact, I would say that the real intent was not to eradicate illicit cash usage at all, but to get the economy moving over to cashless digital payments faster.
This CNBC report from late last year concurs:
Certainly it seems that Indians are moving towards mobile wallets as a result of the cash crackdown. For example, I met Vijay Shekhar Sharma, founder of PayTM, last year and he told me of a vision to build the largest Indian bank for 500 million accountholders by 2020. But it wouldn’t be a traditional bank or compete with traditional banks. It would be a mobile digital first bank, offering basic banking services to Indian citizens and leveraged from their start point as a simple payments system based on QR codes, and powered by Ant Financial technologies.
My interview with Vijay is in the new book, Digital Human, but the key note I remembered was that the company had 130 million wallet users in October 2016 and that has risen to 250 million today. This has made Vijay one of India’s youngest billionaires according to Forbes Rich List:
One of the biggest beneficiaries of India’s demonetisation, Paytm has notched up 250 million registered users and 7 million transactions daily. Sharma owns 16 per cent of Paytm, which is now valued at USD 9.4 billion
And the wallet is also India’s most used on the newly completed Unified Payments Interface (UPI) platform, beating Google’s Tez which had been developed as the internet giant’s digital money play in India. PayTM processed 68 million UPI-based transactions in February, up from 33 million in December and 51 million in January.
All in all, the movement in India from cash to cashless is a wonder to behold, and the leadership of PayTM and Ant Financial in making it happen is also a wonder. In fact, it’s rather wonderful.
* Growth slowed to 6.1 percent in the first quarter of 2017 and then fell to 5.7 percent in the second quarter. Before demonetization, India registered a 7.5 percent expansion in the third quarter of 2016.