When the ban on currency notes was announced in India, the Government of India decided to promote a digital economy through the usage of debit and credit cards, e-wallets or online banking. However, now that remonetization has started, cash has once again started gaining momentum.
According to a report by ToI, debit cards have increased in the overall card usage post 8th November. Before demonetization, debit card usage was 42% and has gone up to 60% after that. The transactions have tripled in December 2016, since October 2016.
The majority of this increase has been credited to smaller banks like Oriental Bank of Commerce(OBC) and Punjab & Sind Bank(PSB) for promoting the use of credit cards amongst their customers.
The report quoted, “Last October, public sector banks saw transactions worth Rs 10,893 crore from the 61.7 crore debit cards they had issued till then. As against this, private and foreign banks had reported transactions worth Rs 11,048 crore although their debit card base was much smaller at 12.25 crore. This has changed after demonetization.”
Post demonetization, the average transactions and transaction amounts also went up for every 100 cards. More people were preferring or being forced to use, debit cards because cash was not available with ease to many, and using debit cards wasn’t a big deal.
Credit cards are still not becoming as huge as the Government, and the banks had expected them to get. A lot of people in India still don’t prefer having temporary debt on their head, and this is one of the reasons debit cards are preferred. Also, the penetration of credit cards in smaller cities in India is very less.
Even prepaid cards and debit cards play a bigger role in small towns and villages, where cash crunch was a big deal. E-wallets like Paytm and MobiKwik came to the rescue of residents of India during the time and offered their services.
E-wallet usage has gone down by 50% in Jan-Feb 2017
According to a report by Brickworks Media, powered by Chrome Data Analytics & Media, the use of digital wallets has dropped by 50% in the first two months of 2017. As cash comes back to the economy, people are no more forced to pay for services in cash.
Pankaj Krishna, Founder and CEO, Brickworks Media said, “The daily frequency of usage for e-wallet payments has decreased by 4 times post demonetisation.” While Paytm was being used to pay at restaurants, smaller mom and pop shops, roadside dhabas, movies and for groceries, a lot of people are now preferring cards or cash.
There is easier access to cash now, which means Paytm, MobiKwik and FreeCharge have to make sure there are enough incentives for people to use their digital wallets. These results have been compiled by analysts at the agency, from eight metro cities in India.
The Government is going to take steps to reduce cash transactions, by charging Rs. 150 after every 4 cash transactions. This means that digital wallets and cards will become more important, but this will take some time to happen.
It is interesting to see how the Government is trying very hard to move to a digital economy but lacks a strong infrastructure to support the innovative payments methods being offered by large foreign companies in India.