Cashless future is a long way off despite big surge in e-payments

As of 30 September, the number of point of sale devices, which accepted debit and credit cards as modes of payments at merchant outlets, was only 1.49 million


Indians had nearly 730 million debit cards and 27 million credit cards at September end. Photo: Hemant Mishra/Mint
Indians had nearly 730 million debit cards and 27 million credit cards at September end. Photo: Hemant Mishra/Mint

Mumbai: With the government having de-legalized Rs500 and Rs1,000 bank notes, there is mounting interest in electronic payment mechanisms, with mobile payment firms Paytm, Ola Money and Mobikwik reporting increased downloads of their apps.

The Reserve Bank of India (RBI), on its part, has also been goading people to use electronic modes of payments.

“Such usage will alleviate pressure on the physical currency and also enhance the experience of living in the digital world,” RBI had said on Saturday.

Is India ready to go fully cashless then? The short answer is no. The long answer, is slightly more nuanced, but still a no. A look at the cashless payment infrastructure tell us why this is so.

As of 30 September, the number of point of sale (PoS) devices, which accepted debit and credit cards as modes of payments at merchant outlets, was only 1.49 million, RBI’s monthly bulletin shows. Still, the number is higher than the 1.38 million reported on 31 March. These outlets include railway stations, airports, hospital counters and supermarkets.

In comparison, Indians had nearly 730 million debit cards and 27 million credit cards at September end. It isn’t clear, however, how many people have more than one card.

These debit cards in the system also include about 200 million RuPay cards linked to over 250 million bank accounts under the Prime Minister’s Jan Dhan Yojana. So far, about 24% of Jan Dhan accounts have zero balance, as reported by the financial inclusion movement’s website. And, according to a 13 September report by The Indian Express, 18 public sector banks and their 16 regional rural subsidiaries had just over 10 million accounts with only Rs1 in them, as bankers try to cut down the number of zero balance accounts under them.

An even better indicator would be the money that is spent at these terminals. According to RBI data, people used debit cards to make nearly 1.2 billion transactions worth Rs1.6 trillion across India in FY16.

While the transactions and amount may seem high, India also used debit cards to make over 8 billion transactions worth Rs 25.37 trillion at automated teller machines (ATMs) during that period. These were mostly cash withdrawals and some transfers made to other accounts and credit card bills.

Credit cards recorded 785 million transactions on PoS terminals, where an amount of over Rs2.4 trillion was spent. 

It is clear then that India is largely using its plastic cards to withdraw cash, which it spends later.

Mobile wallets, where services such as Paytm, Mobikwik and Ola Money offer ease of transaction to customers are still in the starting phase of adoption as only around one-fifth of India’s population has a smartphone where these services can be used. According to GSMA Intelligence, a mobile operator database, there were about 275 million smartphones in India as of June.

RBI’s monthly bulletin points out mobile wallets were used to make 604 million transactions in FY16 by customers who spent about Rs20.6 billion. Mobile banking—or transactions done via applications provided by banks to transfer money, pay utility bills and check balances—recorded 390 million transactions worth over Rs4 trillion. 

Unified Payments Interface (UPI), the National Payments Corporation of India’s (NPCI’s) ambitious payments interface which enables person-to-person transactions without the need to exchange sensitive bank account information is yet to fully take off. While NPCI has been able to sign up 26 banks to the UPI platform, which went live in August, the number of downloads and transactions hasn’t picked up. 

“Only about 20-25% of all transactions that happen in India are cashless. With this demonetization drive, we should see this rising and people opting for mobile wallets more. However, it is true the infrastructure for acceptance is still an issue that needs to be overcome. Possibly, this would be the time for improving that,” said Karthik Srinivasan, senior vice-president, ICRA Ltd.

Another factor that works against cashless transactions is the perceived security problems. Last month, details of about 32 million cards were likely to have been compromised due to a security breach in an ATM network. This led to State Bank of India (SBI) issuing 600,000 new cards to customers who could have been victims of this. In September, The Economic Times reported that about 100 customers of FreeCharge, a mobile wallet provider, lost money due to a phishing attack.

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