The use of cash seems to be becoming more prevalent during the ongoing lockdown as smaller retail outlets, the only category of retailers open for business at present, seek payments in cash from customers.
Many of these retailers, usually the neighbourhood kirana stores, have been accepting digital modes of payments since the sudden withdrawal of high-value currency notes by the government in November 2016. Referred to as demonetisation, the event led to these shops and others joining the digital payment ecosystem.
“In my area in Powai (a Mumbai suburb), several shops do not accept digital payments citing the demand for cash from their suppliers. During the lockdown, getting cash has also become difficult as people do not want to use automated teller machines (ATMs) for want of sanitisation after each use," said Anand Kumar Bajaj, chief executive of PayNearby, a fintech that provides AePS services, among other digital banking services.
According to Bajaj, since a retailer is selling multiple categories of products and branded/unbranded both, he does not want to get into a behavioural change by accepting digital payments from customers since some of his suppliers ask for cash.
“There are several unbranded goods being sold by kirana stores whose suppliers take only cash, while suppliers of branded goods are willing to take digital payments. Half of his suppliers want cash, the rest want digital and, in this dilemma, the retailer wants only cash from his customers. No one says no to cash," said Bajaj.
A look at the digital payments data paints an abysmal picture as all but Aadhaar-enabled payments system (AePS) have seen volumes crash in April. Take the case of national electronic fund transfer (NEFT) where both inward and outward remittances have shrunk 33% between March and April to 175.9 million. Volumes on immediate payment service (IMPS) has also declined 44% in the same period to 122.47 million transactions. Unified Payments Interface (UPI), used by some merchants have seen a dip in volumes to 999.57 million in April, from 1.24 billion in March.
Dewang Neralla, chief executive of Atom Technologies said that the drop in volumes could be because NEFT and real-time gross settlement (RTGS) transactions at branches have also declined.
“Earlier a lot of people would do digital transactions for NEFT and RTGS by sending someone to bank branches. Especially when you look at a B2B value chain and not a consumer value chain," said Neralla, who believes that while cash usage is up, it is only a temporary phenomenon.
He also pointed out that even merchants who have point of sale (PoS) terminals need a constant supply of paper rolls to keep those machines running. “Service and support have just resumed in terms of going down to the merchants and supplying them paper rolls. The point of sale terminals require paper rolls and if those are not there then their whole digital payment modes are affected," said Neralla, adding that onboarding of merchants has also dropped.
Amitabh Kant, chief executive of Niti Aayog told Mint last month that given the lockdown, the merchant acquisitions indeed have taken a hit. “Based on my understanding, the new merchant acquisitions saw a 50% drop in March and may have seen no growth in April," Kant had said.
Meanwhile, cash in circulation in the economy has also grown since the beginning of the financial year 2020-21 by 3.6% to ₹25.35 trillion as on 1 May, showed data from the Reserve Bank of India (RBI). AePS volumes have more than doubled between March and April to 403.3 million riding on the back of digital benefit transfers by the government.
In March, the government released a ₹1.7 trillion relief package under the Pradhan Mantri Garib Kalyan Yojana to help migrant workers, farmers, urban and rural poor, and women. The government said on 6 May that ₹10,025 crore has been credited to 20.05 crore women Jan Dhan account holders as first instalment.
“It does look like a resurgence of cash, albeit for now," said Bajaj.