That may seem like a tall statement, but it is based on data. It is predicted that in the next three years, merchant payments through cash in India will be less than 50%.
For a country as large as India — don’t forget, we now have the world’s largest population — that is a phenomenal accomplishment. Amidst these rapid strides to a digital future, fresh opportunities will open up for tech companies and startups.
To be sure, cash will continue to play a big part in the Indian economy. But over the next five years, cash will no longer be king. It will have to take its place among commoners.
Replacing cash very quickly
In its Future of Retail Payments Report 2023, consultancy firm Bain and Co has predicted that by FY2026, cash will go down to 48% of overall payments in the country. Currently, it is at 70%. That is a steep fall, especially since FY26 is less than two years away.
That same report shows how India has leapfrogged other emerging economies in terms of non-cash payments. We took three years to move from 20% to 30% of digital payments. The Philippines took nine years, while Argentina took four years to achieve the same. Both have much smaller populations (110 million and 45 million, respectively).
Similar predictions have been made by the central bank as well. In a speech at an alumni conference in Mumbai on May 10, RBI Deputy Governor Michael Debabrata Patra pointed out that by 2026, two out of every three transactions would be through non-cash modes. Total digital payments would jump to $10 trillion by then, he said.
Clearly, UPI and government-backed incentives have worked as a force multiplier in India.
The recently released Internet in India Report by industry body IAMAI and analytics firm Kantar found that 338 million Indians use digital payments, and almost all of them — 99% — are UPI users.
Cash is still big though
Don’t write cash off yet. After demonetisation, cash in circulation had fallen to around Rs 9 lakh crore. But it bounced back. And how. Data from the Reserve Bank of India shows that currency in circulation with the public as of April 23 stood at Rs 33.4 lakh crore, up 38% from 24.2 lakh crore in 2020.
Industry insiders say that cash on delivery still continues to be the most popular payment mode for ecommerce deliveries. A chunk of those COD orders, however, could actually be UPI payments made on delivery.
So, there is still a massive demand for cash. And at the same time, consumers are increasingly using digital payments for daily transactions. A zero-sum game this is not.
Merchants are also opening up to accepting payments online, especially UPI payments, given there is no MDR or charges borne by them for digital transactions. Also, it helps avoid the perennial problem of having to provide loose change or endure glowering looks from consumers who are forced to accept toffees in its stead.
The impact of digitisation of payments
The digital explosion will impact both merchants and consumers in myriad ways.
For merchants, digital payments would mean more transactions getting recorded in bank statements. Eventually, this could push up their tax liability. But it will also give them better access to organised financial services.
The economic dynamic in rural areas, where more and more QR codes are popping up, is also changing.
“Back in the day, we used to see consumers taking out the entire direct benefit transfer money (transferred by governments to eligible citizens) when it hit their bank accounts. Now they take it out as needed,” said a bank’s business correspondent (ABC is a financial intermediary between a bank and customers in far-flung areas). “Perhaps, going forward, they will start using them directly from the account, through Aadhaar.”
On the consumer side, adoption can be expected to grow further. Smartphones will become the default mode for payments and card companies will have to find ways to embed their products in handsets to ensure payments continue to flow through them.
ETtech Exclusives this week
Ecommerce not clicking as it did post-pandemic: Shopping across ecommerce platforms is growing slower than anticipated, according to industry executives, multiple brands, and third-party platforms tracking shipment and sales data. Growth has been hit by low volumes, and discounts, we found out.
In ‘reverse flip’, Razorpay parent entity plans to return to India from the US: Fintech major Razorpay is planning to move its holding company from the US to India amidst tightening regulations in the sector. After Walmart-owned PhonePe, Razorpay is the second large fintech unicorn to flip back to India.
Razorpay cofounders Harshil Mathur (left) and Shashank Kumar
■ Pine Labs, PharmEasy face markdowns by Neuberger Berman as tech valuations tumble: Funds managed by New York-based investment management firm Neuberger Berman have marked down the valuation of the shares they hold in fintech company Pine Labs by 38% and online pharmacy PharmEasy’s parent API Holdings by 21%, according to filings made with the US Securities and Exchange Commission. On Wednesday, ET reported that funds managed by US investment firm Vanguard had marked down the valuation of ride-hailing company Ola by 35% to $4.8 billion. Prior to this, Invesco had slashed Swiggy’s valuation to $5.5 billion, from a peak of over $10 billion, while Blackrock cut edtech giant Byju’s valuation by half to about $11 billion.
■ ONDC logs slow ecommerce uptake, snags may hit expansion: While ONDC, as a network, has scaled to about 20,000 daily orders from around 1,000 in March, 97-98% of the orders have been for hyperlocal deliveries of food and grocery. ONDC was launched in December 2021.
Food-delivery & ONDC
■ ONDC benefits may not be enough to offset Zomato, Swiggy scale: Jefferies
■ Paytm likely to forego buyer app commission on ONDC
■ Explained: ONDC vs Zomato-Swiggy and what it means for the food-delivery space
■ Government’s ONDC arrives with a price war taking on food-delivery majors Zomato, Swiggy
Tech Policy Updates
■ Online gaming platforms against SRO backed by IAMAI: Sources
■ I-T dept to tax Netflix’s India ops
■ Meity to send notice to WhatsApp over spam calls
■ Government may hike IT hardware PLI sops to Rs 17,000 crore
■ CCI starts inquiry into Google payments antitrust compliance
■ IAMAI submits final recommendations to CDCL amid accusations of bias towards Big Tech
Tech & hiring
■ Inflated pay dampens startup executives’ job hunt
■ Hiring of women pips IT headcount growth
ETtech Done Deals
■ Byju’s closes Rs 2,000 crore debt funding from Davidson Kempner
■ Indian startups raised $58 million this week
■ Logistics startup Ripplr raises $40 million in funding led by Fireside Ventures
■ Cybersecurity outfit SquareX raises $6 million in funding from Sequoia Capital SEA
■ EV logistics firm Zyngo raises $5 million in round led by Delta Corp Holdings
(Graphics & illustrations by Rahul Awasthi)
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