Push towards “less cash” society

11 November 2016

While the world was waiting with bated breath and crossed fingers for the outcome of the American Presidential race and Election Night events being organised around the world, on other side of the world something radical took place. The Indian prime minister made an address to the nation and declared that the high value currency notes of ₹500 and ₹1000 will no longer be legal tender post-midnight. This took the entire nation by surprise and reactions started pouring endlessly. From ‘trending’ on #Twitter to WhatsApp messages, everyone seemed to be talking about this. But there was a section of society who was quiet, trying to comprehend what just happened.

India has always been a “cash heavy” society, where cash in circulation is almost 11-13 percent of the GDP compared to four percent in the UK, and almost 90 percent of transactions are still made in cash. There are various reasons, ranging from a generation of people who have only transacted in cash and still don’t trust cards (plastic money) / online banking to businesses (small and large) that deal only in cash to get away from paying taxes. From the small corner shops and vegetable vendors to huge real estate developers, the cash economy had been thriving and depriving the nation of the tax revenues much to the frustration of the working class of the country. For my friends in the western world who wonder if this is possible (I have been asked many times in past two days), they would be surprised to know in India it is possible to get loans in cash from private non-registered money lenders on high rates of interest without paying any taxes. In short there is a huge parallel economy out of the banking system which thrives in just cash. And these are the people who have been affected the most by government’s move.

Browsing through some of the Indian newspapers this morning, I could see huge full scape advertisement from one of the leading payments wallet providers in India, thanking the Prime Minister of India for his move towards curbing black money in India. I think they cannot thank him enough, as besides controlling the black money, nothing has pushed India towards electronic payments more forcefully than the recent move by the Govt. of India, thus giving a huge boost to the payments Fintech industry in India. India has seen the emergence of multiple payment wallets and other payment initiation services over the last few years, but the adoption remained fairly slow, specially beyond “young India”. But when I had to explain my dad how to use a payment wallet on his smart phone yesterday, it struck me what an opportunity this is for the industry. Due to a curb on the cash withdrawals imposed during the transition period when the new currency is being issued, people are looking for alternatives to make their day to day payments. This is bringing the “cash generation” close to electronic payments for the first time. This must be exciting times for the wallets and other payment service providers who should tap the opportunity with spreading awareness and introducing easy to use customer propositions.

This push will definitely have a significant impact, not just in controlling the flow of dangerous black money in India, but will also nudge people to change the way they transact. I hope this enthusiasm does not die down soon and push India close to being a “less cash” society, as stated by RBI in their “Payment and Settlement Systems in India: Vision-2018”.



Cindy Heidebluth