In a swift crackdown on the parallel economy of the country, PM Modi last night announced the invalidation of Rs 500 and Rs 1000 notes.
What followed, of course, were unending queues in front of ATMs and a whole lot of unanswered questions floating about exchanging notes, not to mention the wild rumours.
Amidst this constant conundrum and speculation, digital payment companies were the only ones smiling, and why not?
The introduction of 2000-rupee notes will not only curb black money, but will result in a giant leap from a predominantly cash-based economy to a cashless one.
Bipin Preet Singh, CEO, Mobikwik says "This is the biggest surgical strike on the menace of black money ever heard of anywhere in the world. This is a historic policy change and it will be more impactful than the economic reforms of 1990s.”
He adds that the payment behaviour of India will change. “All the hesitation for card/wallet acceptance will now disappear, as Indians will have to declare all income by depositing cash in the bank. Cash on delivery for e-commerce will now become a thing of the past,” explains Singh.
This step taken by the Center is a massive boost to digital payment companies. Kumar Karpe, CEO, TechProcess Payment Services says, “This is a seminal moment in India’s economic history, as the underlying problem of a cash to GDP ratio of 12 percent was showing us poorly even against emerging economies.”
Karpe goes on to add that the problem of cash is so acute that Modi had no option but to bite the bullet. “This will give a huge push to cashless payment systems like online payments, mobile payments, and point-of-sale terminals, etcetera,” says Karpe.
Talking about the implications this economic reform will have on the digital payment companies, Singh seconds Karpe’s take. “Indian users do a trillion US dollars’ worth of payments annually, of which more than 90 percent was in cash. With this policy change, we expect a 10x impact - we expect to easily hit $10 billion in payments volume in another year,” says Singh.
Naveen Surya, MD - Itz Cash and Chairman at the Payment Council of India, believes that adaption to digital cash will now find a sweet spot among the public at large. “People can now leverage the immense convenience and seamless interoperability it offers. Considering this at ItzCash, we absolutely look forward to a sizeable increase in our transaction and business volumes,” he says.
Rishi Gupta, MD & CEO, FINO PayTech says “This development will definitely encourage the large unbanked and under-banked segment to join the formal banking ecosystem. This is an extremely positive sign to reach out to these customers for deposit mobilization and investments in a regulated environment. It is a matter of time before rural India too catches up.”
Anupam Pahuja, MD, PayPal India has the same expectations from the government and believes that this move will provide a boost for both consumers, businesses and small businesses in particular and propel a less cash economy.
“The timing is perfect for this move as India has the right kind of government incentives – regulations like the Pradhan Mantri Jan Dhan Yojana, Aadhar, innovative payment infrastructures like UPI, and a favorable demographic dividend,” says Pahuja.
Let’s not get too excited, though
However, the greatest challenge is yet to come. With a sudden expansion in digital transactions, these payment companies need to be ready to handle the enormous tide of transactional data coming their way, in addition to combating security threats that it brings along.
But the payment processors seem optimistic when it comes to handling the surge of transactions. “We are expecting a huge surge in digital payment volumes, and our systems are geared to process the expected volume surge in coming days,” says Karpe.
Sharing Karpe’s optimism, Pahuja adds “We are looking forward to furthering the government’s vision of ‘Digital India’ and enabling a safe, secure, and transparent payment mechanism.”
(Additional inputs from Soumik Ghosh)