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Bold Demonetization Plan Leapfrogs India Ahead in Electronic Payments

Currency note

Indian Prime Minister Modi’s demonetization program launched on November 8th—with the objective of curbing fraud by removing counterfeit and illegally gained currency (aka “black money”) from circulation—is an incredibly bold initiative, which has short and long-term impacts for India and the global economy.  Some have called this “the single biggest decision taken by the Indian government since Independence.” The surprise move will invalidate approximately 86% of all cash, as hundreds of millions of people exchange currency in the lead-up to the December 30th deadline to replace all invalidated notes.


Short-term, demonetization is a major inconvenience for the average consumer, with lines around the block just to go to the ATM to withdraw cash and exchange currency, and new lower limits on the amount of cash that can be withdrawn. In a society that depends heavily upon cash, commerce is slowing and tempers are wearing thin. However, the long-term impact of the initiative is both positive and significant for India’s ability to thwart fraud and transition to a cashless (and much more financially inclusive) society.  

Transition to digital currency

More people in India have cell phones than bank accounts. As part of demonetization, those with no formal bank account will be required to open one in order to replace the invalidated notes—in turn helping Prime Minister Modi’s “people’s wealth program,” which aims to provide 75 million people with bank accounts and other financial tools like transfers, insurance, pensions and credit.

At ACI, we are proud to support this dramatic and positive change in India, and view it as one of many ways payments are being transformed globally. We applaud the RBI for taking bold moves to extract bad money—and in doing so, to propel the country to a safer and more prosperous (not to mention convenient) future of electronic and mobile payments. 

Short term demonetization pain, long term electronic payments gain

ACI’s global staff, led by our team in India, worked around the clock changing and testing code to update our Universal Payments software to implement the changes required to dispense new 2000 and 500 denomination notes, which are a different dimension from the existing currency. In addition, we implemented changes to support the new daily ATM withdrawal limits required by the RBI. ACI’s solutions drive more than 140,000 ATMs across the country, so all of the software updates had to be made and tested for each ATM manufacturer, such as NCR, Diebold and Wincor. This work is complete and available for our bank customers in India in a 24/7 effort to maintain continuity for those most affected by the demonetization efforts – consumers and merchants.

Following last week’s surprise move by the RBI, firms like Paytm, a mobile wallet company, have seen an uptick in new customers as the population transitions to digital payments. We expect payment types like this to continue to grow, and the use of ATMs and cash to decline as the impact of demonetization and the prevalence of digital payment alternatives become a way of life. Convenience, security and financial inclusion are all certain to improve, and costly cash-on-delivery and high transaction fees will be replaced by digital payments. 

Start-ups and banks alike—working alongside vendors like ACI with deep expertise in addressing payments disruption—need to stay nimble and respond to consumer needs during this transition. Although there will be inevitable bumps in the road, the upside is too great to ignore.