New Delhi: With the National Democratic Alliance (NDA) government’s announcement of making the ₹ 500 and ₹ 1,000 denominations illegal from Wednesday, the cashless economy will get a big push in the short run but a significant impact is not expected in the long term as consumers may fall back on cash, according to industry watchers.
“Both the merchants and the consumers will have to use cashless modes of payment at least till the time new ₹ 500 and ₹ 2,000 notes are circulated. In the long run, the cashless payments might not grow as significantly as we expect it now. The best part being, the consumers will get to experience new modes of digital payments by that time," said Rahul Gochhwal, co-founder of Trupay, a digital financial technology app.
Addressing the nation on Tuesday, Prime Minister Narendra Modi had said that currency notes of ₹ 500 and ₹ 1,000 denominations will not be legal tender from 9 November. He assured the people that they will not lose their money and will be given a window between 10 November and 30 December to deposit notes of ₹ 500 and ₹ 1,000 in any bank or post office to get them replaced.
“Overall digital payments have already being growing at around 40-70% between different payment products. Debit cards are growing around 40%, credit cards at 15-20% but with the growth in the overall spend, cash was also growing. Now it’s the beginning of a new era and the cashless industry is all set to expand at the rate of 100% in the next two years," said Naveen Surya, managing director of digital payments company ItzCash and chairman of Payments Council of India (PCI).
“When there is a systemic signal by the top most leader of the country to use more and more electronics payments in spite of bringing in more currency, that’s a big push to the whole industry," he added.
“There will be three major impacts of this announcement. Firstly, the digital payments will explode and according to our study around 40% of all e-commerce transactions was paid by cash on delivery (COD), this will now reduce drastically. Lastly, the number of credit cards will also go up. Earlier, the income tax regulations had imposed a rule of scrutiny for transactions above Rs2 lakh through credit cards in a year and the customers were reluctant to show electronic payments," said Amrish Rau, chief executive officer (CEO) of payment gateway provider PayU India.
Modi had explained the reasons for the move for making the announcement. He had stressed on the negative impact of corruption, black money, fake currency and terrorism on the economy. With the elimination of black money, there will be a sudden need to fill that gap by digital money.
A move to a cashless economy will ensure lower cost and traceability of transactions. Every transaction you make online is usually done through a bank or through a third-party service such as Paytm. That said, it would be extremely easy for the government to note down any discrepancies between a person’s actual income and his/her transactions and to follow up with investigations.
Explaining about the challenges that need to be addressed by digital payments companies, Anish Williams, co-founder & CEO, TranServ, a digital payments company, said, “Democratization of payment products will be a huge task for digital payment companies to work on. The payment solutions have to be interoperable for people to adopt it. This interoperability can be only achieved by working in partnership with the banks and networks, rather than trying to compete with them."