Mobile Wallets Show Growth, But Cash is Still King After Note Ban

The digital payments industry is expected to surge ten-fold since November last year to 500 billion dollars by 2020.

File photo of an Indian man displaying new Rs 2,000 notes in Ahmadabad, India. 

(Photo: AP)

Demonetisation came at the right time for Ridlr. The local transit app had just started selling public transport tickets. As a cash crunch followed the note ban, transactions spiked.

We saw a fourfold surge in business as people started coming to our platform to book tickets or passes for their everyday commute in Mumbai.

Brijraj Vaghan, co-founder, Ridlr

A year later, the app has close to 500,000 users, sells 1.5 lakh daily trips through 30,000 transactions.

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Ridlr wasn’t alone. Digital transactions surged after Prime Minister Narendra Modi invalidated Rs 500 and Rs 1,000 bills last November. The biggest gainers were prepaid wallets like Patym and Unified Payment Interface-enabled apps as people used them for everything from paying utility bills to buying groceries and even a rickshaw ride.

The growth of the digital payments industry accelerated from 20-50 percent to 40-70 percent after the cash ban, according to the Payments Council of India. And it’s expected to surge tenfold since November last year to 500 billion dollars by 2020, according to a report by advisory firm IMAP.

That’s only part of the picture though. The initial spike came as 86 percent of the currency was withdrawn. As cash returned, volumes declined and traditional digital payment modes like card payments and National Electronic Funds Transfers have fallen back to their historic pace of growth.

It’s the new-age platforms and startups that are growing faster, though slower than the initial surge. Cash withdrawals at ATMs are nearly back to pre-demonetisation levels.

ATM withdrawal graph

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Demonetisation was never supposed to change things drastically. It was more a psychological message that cash is not welcome and digitisation of cash is inevitable.

Naveen Surya, chairman of the Payment Council of India.

The market is crowded with multiple payment options from Paytm and the National Payments Corporation of India’s UPI and BHIM app to Google’s Tez, Aadhaar Pay and Bharat QR (Quick Response code). The central bank granted licences to 13 new digital entities in the past year. Fifteen startups were founded in 2017 and investments in fintech companies surged 600 times to 1.4 billion dollars over 2016, according to startup researcher Tracxn.

BloombergQuint looks at how popular payment modes fared since demonetisation.

Wallets Swell

Mobile wallets like Paytm and other prepaid instruments were among the biggest beneficiaries. Prepaid transaction volumes more than doubled since demonetisation and value is up over 70 percent, according to data from the Reserve Bank of India.

Prepaid Instruments graph

Paytm’s user base jumped almost two-fold to 27 crore during the period. Its smaller rival Mobikwik gained as well with the number of subscribers growing two-fold to 6.5 crore.

The year has been phenomenal for us and we are roughly clocking 7.5-8 million (80 lakh) transactions a day,

Kiran Vasireddy, chief operating officer and senior vice-president, Paytm

For Paytm, 60 percent of the adoption has come from tier 2 and 3 towns, and most of the users are active, he said. The mobile wallet has added close to 42 lakh merchants on its platform in the last one year, he said.

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UPI Surges

UPI Graph

Another offering that has seen volumes surge is the National Payments Corporation of India’s Unified Payments Interface, which allows mobile payments and fund transfers across banks. Mostly used for low-value payments, UPI volumes jumped from 3.3 lakh to 7.7 crore transactions a month, RBI data shows. Monthly value surged from Rs 90 crore after the cash ban to about Rs 7,000 crore now.

Immediate Payment Service Graph

Payments through Immediate Payment Service or IMPS, which includes UPI and the BHIM app, rose 89 percent during the period.

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Cards Just Lead To Cash

Debit Card Graph

Card payments rose immediately after the note ban but the growth has since eased. Debit card transactions through payment terminals went up threefold percent immediately after 8 November, said Rajiv Anand, executive director at Axis Bank.

“If we were doing 100 transactions before that, the number went up to about 300. It has since come down to 180.”

Without demonetisation, that growth would have come in three years, he said.

The value of debit card transactions continues to increase around 13 percent year-on-year. Since December, they are up 89 percent at Rs 2.70 lakh crore. That’s driven by cash withdrawals at ATMs, which contributed 87 percent or Rs 2.35 lakh crore to the total value in August, according to the RBI data. The rest are payments through point of sale terminals.

So, cash is still the king in the Indian economy, said Anand.

NEFT Growing At Historical Pace

NEFT Payments Graph

The National Electronic Funds Transfer through bank accounts, largely used by individuals, rose almost 31 percent since October. The 42 percent jump in the year to August is around its historical pace of growth.

If the newer technologies like the UPI platform, wallets and other prepaid instruments were not available, digital payments would have touched the average historical growth by now

Vivek Belgavi, partner-fintech, PwC

The real winners of demonetisation are new-age platforms.

The growth has sobered for Ridlr as well. It’s transactions are up two-fold and the startup has added UPI as a mode of payment, Vaghani said. “Yet, demonetisation definitely provided a push. We expect to maintain the momentum and expand the ticketing business to Delhi.”

(This article was originally published on BloombergQuint.)

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