With the increased penetration of technology into banking, India stands at a juncture of a great opportunity to steadily shift from cash to less cash to a cashless economy. Global industry studies reflect that the cost of cash is between 1-3 per cent of a country’s GDP. However, the Indian economy continues to be dominated by cash, with electronic payments accounting for 5 per cent of the Personal Consumption Expenditure (PCE) - amongst the lowest in the world.
A Moody’s study conducted by Visa in 2013 shows that there is a direct correlation between implementation of digital payments and sustainable growth, and this change is most prominent in emerging economies.
Currently, India has close to 620 million debit cards and 22 million credit cards, but ironically the trend of using cards to withdraw cash from the ATMs instead of using them at PoS and merchant outlets, continues to be dominant. In a country where there is a high dependence on cash, the transition to move to electronic payments will take time, however the signs of transformation are already visible.
The Government of India and Reserve Bank of India’s collective resolve to move to a cashless society as outlined in the Digital India vision, is very encouraging.
In view of the changing commerce landscape, over the past year, industry bodies have proposed incentivising transactions made electronically, along with suggesting that payments of utilities be made mandatory through electronic payment methods or cheques. This would also help in increasing citizen to government payments.
Further, efficient infrastructure and delivery mechanisms (mobile phones, small and payments banks, financial correspondents) will play a significant role in accelerating this shift. The payments industry in India is very dynamic and fast evolving, as all stakeholders and regulatory authorities come together to achieve a ‘cashless society.’
We hope that the policies announced in the upcoming budget will help accelerate the shift to electronic payments, as a less cash-dependent economy will help increase the revenue for the government.
(The author is Group Country Manager, India and South Asia, Visa)