The digital gold rush: Is it the way forward?

Along with fixed deposit and real estate, physical gold has been considered as a powerful asset among people. But of late, from physical gold, the trend is now slowly moving towards digital gold. Though people still love to visit jewellery stores to buy ornaments, the mindset towards paperless gold and the awareness about it has been steadily increasing, thanks to various companies like Paytm and PhonePe.

These companies promote the concept of digital gold and have been seeing huge tractions since the time they introduced it.

Launched in April last year, Paytm Gold has been attracting more customers, including Tier-II and Tier-III cities.

Paytm Gold is fast emerging as the saving option of choice owing to the flexibility, security and transparency it offers.

Senior Vice President at Paytm Nitin Misra says Paytm has democratised gold purchase in India with transparent pricing, guarantee of purity, assured buyback, 100% insured lockers, live prices and also no minimum price purchase.

“Paytm today is the market leader in fractional gold products that allows customers to buy 24k 999.9 purity gold for as low as Re 1 anytime, anywhere,” Misra says, adding smaller denominations enable people with low disposable income to also save in gold, and it also helps people who want to first test the flow before committing a higher amount.

Kept in insured lockers with MMTC-PAMP, free of charge, one can get the delivery of their gold at any time.

MMTC-PAMP India is a joint venture between PAMP SA Switzerland and MMTC Ltd, a Government of India Undertaking, operates the world’s most advanced precious metals processing facility, under the direct technical supervision of PAMP.

During Akshaya Tritiya, the payments company’s gold sales rose three-fold to 20 kg in a single day.

It said that maximum sales were reported in Bengaluru, Delhi NCR, Hyderabad, Mumbai and Kolkata.

Over 1.5 million customers transacted 20 kg of gold items, mainly 24 carat gold coins, on its platform on the Akshaya Tritiya day this year, compared with 6.5 kg gold items on the same day last year, Paytm said.

Misra says they are planning to expand their product portfolio aggressively.

Another digital payments company, Bengaluru-headquartered PhonePe recently announced its partnership with MMTC-PAMP to provide 24k gold of 99.99% purity on the PhonePe app.

In the next few months, PhonePe plans to launch an array of new features around Gold Savings including redemption at jewellery stores, gifting products on gold to make it easy and accessible to all PhonePe users.

Karthik Raghupathy, Head of Strategy, PhonePe, says, “As a part of the digitised economy, Gold as a savings option has picked up. As per a recent report by the World Gold Council, the demand for gold has grown 18% annually and PhonePe has witnessed a 300% growth in Gold Savings within three months of launch.”

The company is seeing transactions from as low as Rs 100 to Rs 50,000 across its platform.

“With the power of the bank account in their hands, customers can instantly purchase gold at the click of a button using the payment instrument of their choice,” Raghupathy adds.

The largest section of users purchasing gold on PhonePe belong to the 25-40 age group. In just three months, PhonePe has sold more than 200 kg of gold.

Going forward, both the companies have plans to collaborate with leading jewellers to help grow the ecosystem and also offer customers more choice.

“We are in advanced stage discussions with jewellers for partnerships,” said Misra.

Paytm, at present, is delivering gold to over 25,000 pin codes in the country, and it has also enabled OTP based security features at the time of delivery. The average transaction value the company witnesses is approximately Rs 200.

With 1.5 million customers using digital gold option, the company has already transacted 800 kg of gold on its platform. If a customer wants to sell the precious metal, he/she can do so at any time.

SGB, a substitute for physical gold

Many banks are now offering Sovereign Gold Bonds (SGBs) as these are government securities denominated in grams of gold. “They are substitutes for holding physical gold. The quantity of gold for which the investor pays is protected, since he/she receives the ongoing market price at the time of redemption/ premature redemption. The SGBs offers a superior alternative to holding gold in physical form,” according to the Reserve Bank of India.

SGB is free from issues like making charges and purity in the case of gold in jewellery form. The bonds are held in the books of the RBI or in demat form eliminating risk of loss of scrip etc.

“When someone buys Paytm Gold, physical gold is kept in MMTC lockers of the same amount. Paytm Gold can be bought in quantity and sold for cash or be redeemed as physical gold. Bonds can only be bought in cash and redeemed in cash. And also minimum purchase value of SGBs is also pegged higher at 1 gram of gold,” says Misra.

For April 2017 Sovereign Gold Bond tranche, YES Bank saw a 37% jump compared to the previous month (March 2017).

Pralay Mondal, Senior Group President and Head- Retail and Business Banking, YES Bank, says there has been an increase in demand for demat/ paper form of gold “This is very encouraging as traditionally people used to rely only on physical form of gold,” Mondal adds.