The National Democratic Alliance (NDA) government’s massive currency culling exercise three years ago has brought India’s payments system at an inflection point, where cash transactions continue to dominate. The move, simultaneously, nurtured the habit of spending through various digital platforms.

In its fight against black money, counterfeit currency and terror financing, the Narendra Modi-led government on 8 November, 2016 banned high-value currency notes of 500 and 1000 denomination, or 86% of the currency in circulation. The government had then said the step would boost digital payments that would make spending convenient and also increase transparency.

The coming together of new-age technology and traditional banking methodology has become a win-win situation for the financial ecosystem, offering more options to customers in the payments space. Digital payments witnessed a massive growth post demonetization, especially with the government and the banking regulator’s attempt to make India a ‘less-cash economy’.

“Demonetisation brought about a springboard effect in terms of growth for Fintech in India. In a country which was primarily cash dependent, the pre-demonetisation period witnessed slow adoption of digital payments," said Sampad Swain, chief executive officer and co-founder of payment gateway firm Instamojo.

The government’s move to scrap currency encouraged adoption of digital payments, and also opened the doors for several startups such as Paytm, Mobikwik, among others. Before 2016, debit cards were mainly used to withdraw cash from ATMs but immediately after the note ban there was a surge in debit card payment at merchants.

Use of prepaid payment instruments such as wallets and Unified Payments Interface (UPI), and mobile banking, picked up rapidly. Other platforms such as utilities payment portal Bharat Bill Payment System (BBPS), also developed by NPCI, were launched to make payments simple, hassle-free and mobile friendly.

Sample this. In October, transactions via the three-year old instant payments system UPI recorded a new high of 1 billion. Besides, the number of transactions via UPI was 1.2 times higher than the number of debit card transactions in 2018-19, according to RBI annual report.

The payment system, developed by RBI-backed NPCI now plans to take UPI global and is in discussion with other countries regarding the same.

“Post demo(netisation), both merchants and consumers were driven to adopt alternate modes of cash transactions. Moreover, the rapid penetration of the internet and mobile data across the last 2 years has catalyzed the process of adoption and increased the level of digital payment literacy in the country," Swain said.

The use of debit card at point of sales (PoS) devices grew 83% since November 2016. According to the latest RBI data, such transactions were 23.47 crore in November 2016 and rose to 42.87 crore in August. The number of transactions for use of such cards at ATMs grew 42% at 81.42 crore.

Similarly, fund transfer transactions via online payment system the National Electronic Funds Transfer (NEFT), commonly used by businesses, were 22.12 crore in August, up 80% since demonetization. E-payment system Immediate Payment Service (IMPS) witnessed over five-fold jump since November 2016, clocking 20.10 crore transactions in August.

According to Mandar Agashe, founder and vice president, Sarvatra Technologies, customers’ confidence in online payments has increased in the last few years. “Use of debit cards (other than withdrawing cash from ATM) became more popular post demonetization. Also, since debit card is required to activate UPI pin, it increased use of both means of digital payments," Agashe said.

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