The government’s big push to boost digital payments hasn’t quite gathered steam a year after demonetisation. After an initial surge in digital payments, largely attributed to a shortage of cash in the banking system, digital transactions have seen a dip, indicating a slow reversal in the usage of digital platforms.
While total value of transactions via electronic payment system hit a high of Rs 149 lakh crore in March 2017, up from Rs 94 lakh crore in November 2016, digital business fell to a low of Rs 107 lakh crore in July 2017 and Rs 109 lakh crore in August, according to figures available from National Payment Corporation of India (NPCI). It rose to Rs 124 lakh crore in September 2017 but was down to Rs 99.28 lakh crore in October (till 29th) despite doubling of point of sale (PoS) machines in merchant establishments across the country. The volume also declined from a high of 957.5 million in December 2016 to 863.9 million by October 2017. “There is anecdotal evidence that some smaller merchants are reverting to cash. With easing of the liquidity crunch, transaction volumes for overall retail electronic payments have seen a marginal dip. For mobile wallets too, there has been a gradual tapering after the initial bounce. This prima facie would suggest a slow reversal in the usage of digital platforms,” HDFC Bank said in a report.
Mobile wallets have seen a dip in volumes and value of transactions after the initial surge. Volumes and the value of transactions of mobile wallets initially surged from 99.57 million and Rs 3,385 crore in October 2016 to 261.67 million and Rs 8,353 crore by March 2017, according to the RBI. However, volumes and the value of transactions declined to 225.43 million and Rs 7,262 crore by August 2017. M-wallet firms like Paytm, Freecharge and Mobikwik had announced major expansion plans soon after demonetisation enlisting cab operators, vegetable vendors and kirana stores for digital payment.
Unified Payment Interface (UPI), the payment platform of NPCI — promoted by RBI — had a slow takeoff even after the launch of BHIM (Bharat Interface for Money), which uses the UPI platform. UPI volumes lagged below ten million till May 2017. The value of transactions through UPI was Rs 5,290 crore in September 2017 against Rs 1,660 crore in January — which is much below one per cent of the total electronic payments in the country.
However, bankers and analysts said a complete switch back to pre-November 8 trends has not happened, holding out the possibility that there has been some behavioral change in transactions patterns. “Although significant progress has been made over the past year alone, India still offers one of the largest cash displacement opportunities across the world and will experience a massive turnover in terms of economic growth and the future of the country. At a modest 11 per cent, the country’s electronic personal consumption expenditure (ePCE) rate is a far cry from some leading economies with ePCE rates upwards of 60 per cent,” said Visa Country head, T R Ramachandran.
Banks said they are pushing hard for digitisation. “We are undergoing a digital transformation in the bank and we are readying the bank for the future,” SBI chairman Rajnish Kumar said. SBI had seen the number of PoS terminals surging from 3.6 lakh in September 2016 to 6.42 lakh in September 2017, number of transactions rising from 7.05 lakh to 20.92 lakh and the value of transactions surging from Rs 18,067 crore to Rs 47,825 crore in the same period, an SBI official said.
With over 800 million debit cards and over 30 million credit cards in the market, almost every household in India now has access to a digital payment, but it has not yet translated into digital transactions. The value of transactions using debit cards was Rs 270,609 crore and volume 981.81 million in August 2017 against Rs 238,013 crore and 887.22 crore in the same period of last year. “Even more heartening is the emergence of the humble debit card as a preferred form of payment over the past year. At 3 times growth in payment volumes and over 3.5 times growth in transactions, consumers are beginning to enjoy the benefits of the debit card beyond its use as an ATM withdrawal instrument. Since the start of the year, the industry has added over 1 million new acceptance points helping double the acceptance network to 2.8 million acceptance points across the country,” Ramachandran said.
Navin Surya, chairman, Payments Council of India, said: “The growth rate of the digital payments industry which was earlier in the range of 20-50 per cent has accelerated post demonetisation to 40-70 per cent. This also resulted in doubling of POS machines in just one year which was one of the weakest links prior to demonetisation. PoS machines have doubled from 15.1 lakh in October 2017 to over 30 lakh now.”
“Ten years ago, only two per cent of all transactions were digital. Today approximately 12-15 per cent of the transactions are done digitally and we are optimistic that now the industry is all set to witness an accelerated growth during the next decade,” said Bhavik Vasa, chief growth officer, EbixCash.
“This is only Round 1(first year post-demonetisation)… the cashless match has only just begun and it’s going to be a long one. Post demonetisation, the rhetoric has now changed from bank versus non-bank or wallet versus bank, with the industry witnessing an increased mind share for its digital and cashless journey,” Vasa said.
The year after demonetisation was driven by innovation, mainly news mobile applications allowing merchants to receive digital payments via UPI, Link Based, Bharat QR Scan & Pay to mPOS. Competition also intensified with the entry of new players. “There has been concern that with cash back into the system, the sustenance of digitising payments has taken a hit. However, we believe that structural reforms like the GST has in fact given the much needed boost to the digitisation initiative. It will be difficult to make cash deals anymore with digital trails of every transaction now. While we haven’t seen any slow down owing to cash in the system, we are sure that even if there is any lag or slow down, it is just temporary,” said Dewang Neralla, MD & CEO, Atom Technologies.
What’s the road ahead? Bankers and industry experts say for further accelerating the growth momentum and moving towards a ‘less cash economy’, both the government and the regulators need to continue the initiatives taken by them. Principle-based policies, regulation versus current approach of product or entity based regulations, seamless access to payments network and other critical payments infrastructure like UPI and RTGS, among others, to all the authorised payments players will make sure that incentives continue to grow for digital transactions. This also needs substantial investments by the players.