One Year Later: How Demonetization Has Impacted India
This month marks the first anniversary of demonetization in India, and it has undoubtedly changed the country forever. When I visit India, I increasingly see micro-transactions conducted via mobile phones. Cash is still used, but I see less and less of it with each visit. We are in the middle of a true paradigm shift – and India is poised to become a global leader in new types of payment acceptance.
Mixed results following demonetization
From a macroeconomic perspective, reports have indicated that the early stages of demonetization have produced mixed results:
- 90% of cash that was in circulation has been returned to the banking system. This (cash) can be loaned out and increase the GDP to burgeoning entrepreneurs.
- More taxes are collected due to higher bank balances, which can lead to a decrease in the tax rate, spurring economic spending.
- Farming and automotive experienced adverse impacts due to a lack of available cash.
Impact of demonetization on payments
Now focusing on payments, the data available supports what I have seen firsthand. The government had set an ambitious target of 25 billion cashless transactions in 2017. While this may not be reached, digital payment transactions are up 53% in terms of value, and up 33% in terms of volume, with volume growing at a rate of 7% each month.
Reserve Bank of India statistics show that the growth in digital payments was uneven. UPI (Unified Payments Interface) grew at a compounded monthly rate of over 100% in the first 6 months following demonetization. Comparing monthly volume in July 2016 and 2017, mobile banking volumes grew at a CAGR of 75%, and IMPS (Immediate Mobile Payments System) grew at 115%. Clearly staggering growth in volume and rapid adoption of these new digital payments.
Card-based payments, by comparison, grew meagerly at less than 5% in the first 6 months. Admittedly, the card payments base dwarfs that of new payment types such as UPI and IMPS, but this gives us a glimpse of what the future may hold.
New payment infrastructure and the network effect
The IMPS and the UPI protocols support instant payments using mobile phones. The early results indicate that the regulation was a catalyst for significant growth of non-traditional digital payments. New payment applications, such as the Bharat Interface for Money (BHIM), have been built on this new infrastructure.
A significant barrier to overcome for new payment types is the lack of a network of consumers, banks, intermediaries and retailers needed to use and accept the new method. However, BHIM has been designed to be different and overcome these network challenges. It eliminates the need for bank applications and intermediary transfers, while allowing anyone with a bank account and smartphone to make a payment. BHIM also allows users with Aadhaar cards to make payments to others with an Aadhaar number. This effectively opens the marketplace to millions of new Aadhaar-enabled bank accounts. Out on the streets, I have witnessed more and more merchants accepting this method of payment. My eyes are not lying – and the network of retailers needed for a new payment type to be successful is growing.
The future of payments in India
India, much like the rest of the world, is facing several ‘mega trends’ in the payments market. Those that will have the most significant impact in India include the shift from customer experience to engagement, trust in digital transactions and new technologies, as well as the longitudinal trend of the blurred lines between commerce and payments.
I will explore these trends in a future post and outline what they mean for India, but I will close by posing a final question: Has demonetization and the new digital infrastructure positioned India as a leader in digital payments?
Given the growing demand and sheer volume of people using these new digital platforms within just one year, it would not surprise me in the least if India emerged as the benchmark for digital payments.
Related Blog Posts
The Mexican Fintech Revolution – ¿Qué onda in Open Banking?
Mexico has joined an elite group of nations, being amongst the first to pass open banking regulations. Specifically designed to open up its financial services and technology sector, the so-called ‘Fintech Law’ appears to have taken notes from PSD2, UK Open Banking, Singapore’s ‘organic’ approach, and others – and balances these against Mexico’s unique context and aims.
ACI’s Lu Zurawski, one of the industry's foremost open payments experts, and Sonia Gomez, a Latin America payments authority, discuss this balancing act; including the drivers, the regulation and the potential benefits.
Working Up An Appetite for APIs in Australia
This week ACI hosted the latest installment of our #paymentsforbreakfast forums in Australia, with the early birds catching the open banking worm in both Sydney and Melbourne.
Given the similarities between the Australian and UK open banking movements, we enticed ACI’s UK-based Lu Zurawski (Solutions Practice Lead - Retail Banking) to Australia to share his learnings from being heavily involved in the UK Open Banking working group.
APIs and Cash Management (Harnessing the Hammer, Part 2)
In my last blog post, we talked about the hammer and the nail; the hammer in this case being open APIs, and the nail being the market need to adapt to changes in customer behavior and expectations from our commercial market. We laid out why the US is in a different position when it comes to open APIs—it has to do entirely with the regulatory environment, which is allowing us to start with the largest revenue opportunity first. Finally, we challenged you, the reader, on how you can begin on your journey. And that is where we are going to pick things up. What steps can you take today, and what use cases can you explore as we start getting our hands dirty?
Three Key Takeaways from the Latest Payments Insight Survey
Blinkist is a reading app that summarizes books into 15-20 minute reads; these reads are called “blinks.” It’s helpful for a few reasons – I can scan books before I purchase them, I can get new ideas without having to read the full book, and I can learn to summarize information. It’s safe to say that I (and probably many who are strapped for time) are a little obsessed with Blinkist! So here I present my own summary – in three key takeaways – of the new ‘2018 Global Payments Insight Survey: Retail Banking,’ which finds that 51% of banks are increasing spend on payment technology.
The Hidden Cost of Digital Payments for Retail Payment Players
It is not exactly breaking news that non-cash payments are on the rise globally, with column inches dedicated to the launch of digital financial-inclusion projects. But going cashless is not only a challenge for humanitarian endeavors, or developing countries. We all agree that removing cash from the system will save payments players big bucks in the future, but we must also consider the immediate impact of digital transformation on the legacy infrastructure of the powerhouses of the payments ecosystem.
Why User Engagement Matters, Even for Enterprise Applications
As a User Experience Designer at ACI, I spend a lot of time watching users interact with my designs. I need to make sure our solutions work properly, but lately I’m more interested in how they make my users feel. Engagement is a dominant concept in user interface design right now. It’s important because positive emotional experiences often lead to increased use and loyalty.
Five Payments Trends to Watch in 2018 [Part 1]
2018 is set to be a year of rapid change and new challenges for payments players. The floodgates are opening with PSD2 and UK Open Banking coming into force, bringing an onslaught of new competitors and potential partners. Whether evolution is mandated or market-driven, banks and processors are facing a critical year in their long-term success.
Five Payments Trends to Watch in 2018 [Part 2]
The New Payments Ecosystem Is Here. The floodgates are opening with PSD2 and UK Open Banking coming into force, bringing an onslaught of new competitors and potential partners. Whether evolution is mandated or market-driven, banks and processors are facing a critical year in their long-term success.
Open Banking Goes Live: The Walls Around Traditional ‘Old Style Banking’ Are Crumbling Down
January 13, 2018 may well be remembered as the ‘beginning of the end’ of the traditional retail banking industry.
Thanks to a profound set of new rules by European regulators and the UK government, we may see the start of an era where consumers no longer hesitate to change their bank accounts or make more personalized arrangements with regards to their finances.
The Bank of the Future: 2040 and the Reality of Ar and Vr
Mark, when I envision the bank of the future, I imagine Twiki and Buck Rogers at a casino. Or maybe I once dreamed that—I’m old and my mind is going. So what are we talking about and what can we envision when it comes to the bank of the future? And by future, I’m talking about 2040, before certain cities might be flooded (by water). But I digress, as this isn’t a post about climate change.