India’s crackdown on cash caused chaos as 86% of the money in circulation vanished overnight. Banks could not cope with the increase in demand. Consumers did not turn to credit cards or debit cards as expected. Instead, consumers turned to mobile apps.
A number of mobile payments are still small but growth is such that the Wall Street Journal asks Could India’s Cash Blitz Kill Off Cards, ATMs?
The value of mobile money transactions has more than doubled since the nullification of 86% of India’s cash in circulation in November, while those made with credit and debit cards has fallen, and check purchases have barely budged. Mobile payments still make up only a small percentage of overall transactions, but their surging popularity is being noticed.
At this rate, cards and automated teller machines could be redundant in India by 2020, predicted Amitabh Kant, head of NITI Aayog, the government’s economic policy-making body. India’s government, along with removing paper money, has encouraged electronic payments by loosening regulations and adding infrastructure.
Abdul Aziz Ansari had never accepted anything but rupees at his fish stand in a Mumbai suburb. When notes dried up during the cash crunch last year, his sales plummeted. His business looked set to fail, until he signed up for Paytm.
Still, the value of mobile-wallet payments remains lower than checks and cards, but they are catching up to credit cards. In February, mobile payments totaled 69.11 billion rupees ($1.07 billion), significantly behind checks at 6.4 trillion rupees and debit cards at 2.3 trillion rupees but approaching credit cards at 286 billion rupees.
The Reserve Bank of India has been easing rules and building the infrastructure needed to simplify payments. Last year, it started allowing more types of companies to offer digital wallets and has created a new payment system that allows people to connect their identification numbers, phones and bank accounts, providing them with one number for transfers to merchants or other people.
“Your mobile is not just going to be your wallet, it will be transformed into a bank,” Prime Minister Narendra Modi said at an April event promoting mobile money. “This can be the base of financial revolution for the world.”
India’s mobile-wallet leaders said they are adding millions of new users every month.
The phone makers Samsung and Apple, which are leading the race to enable more seamless mobile payments in the West, could have trouble catching up in India, analysts say, because their systems still require card readers that can communicate with smartphones. Samsung Pay launched in India this year, and Apple Pay has yet to start.
Western central banks will be monitoring these events closely. The death of cash money is coming.
