The cancellation of INR500 ($7.50) and INR1,000 has highlighted India’s lack of digital financial options.
Considering the sizable 1.3 billion population, electronic payments are not as popular as you might expect. Cash accounts for 96.8% of the total payment transaction volume in India, an enormous share that is expect to fall over the next five years.
According to Timetric’s research, the annual value of card transactions in $78.8bn with an average annual spend per card of just over $98. There is less than one card (0.63) per person and an average of only 0.26 monthly card transactions.
In contrast, China’s population has, on average, over four cards each, and Malaysia and Thailand have 1.71 and 1.52 respectively.
There are digital options in the marketplace, slowly introduced over the last few years. State Bank of India (SBI) launched the State Bank Buddy digital wallet in August 2015 and, as of March 2016; 4.8 million transactions worth $35.1m had been made. $1.8m of that was at merchant outlets.
Other digital wallets launched by banks include Pockets by ICICI Bank in February 2015 and Lime by Axis Bank in September 2015.
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While not embracing digital options is a risk, a worse strategy would be holding onto cash. India’s net cost of cash – 1.7% of GDP – is high when compared with most developed economies. This results from India’s high share of coins and notes in circulation, at 13.6% of GDP in 2015, according to the RBI. Consequently, India’s average number of per-capita card transactions lags behind leading‘less-cash’ economies. In 2015, India had 10 transactions per capita compared with Brazil’s 163, South Korea’s 420, and Sweden’s 429.
Despite the chaos causes by India’s cash crisis, which should not be underestimated, the silver lining is that this might finally be the boost that electronic payments need to be success in the country.