India’s banknote withdrawal has triggered the world’s biggest experiment in digital cash
Curation Comment

If Narendra Modi wanted to tell 1.3 billion Indians to get with his modernization programme, then pulling the banknotes most commonly used in a country where only 40% of adults have a bank account and only 30% have a smartphone was certainly one way to do it. Whether it was madness or genius remains to be seen, but in a stroke he’s catapulted India up alongside the likes of Sweden and Denmark in the digital cash stakes.

 


	Indians have returned $80bn worth of paper money since the Rs 500 (US$7.5) and Rs 1,000 (US$15) banknotes were withdrawn from circulation last week
	The move has created chaos in local markets and many shops have shut as customers no longer have cash to buy things
	Downloads of mobile wallet apps like Paytm, Mobikwik and Ola money have surged by as much as 200-400%


Indians shop at a market on the eve of Diwali, the Hindu festival of lights, at an orphanage in Jammu, India, Saturday, Oct. 29, 2016. Diwali is one of Hinduism's most important festivals, dedicated to the worship of the Hindu goddess of wealth Lakshmi. (AP Photo/Channi Anand)

Indians shop at a market on the eve of Diwali, the Hindu festival of lights, at an orphanage in Jammu, India, Saturday, Oct. 29, 2016. Diwali is one of Hinduism's most important festivals, dedicated to the worship of the Hindu goddess of wealth Lakshmi. (AP Photo/Channi Anand) Credit: AP

India might not be ready yet to completely transition to a cashless society, but in the wake of government’s major demonetization push, much of the country is quickly learning to pay from their smartphones.

In the light of the announcement, mobile wallet apps have been reporting astronomical growth in usage and downloads in India. The market leader, Paytm, has gone ahead to break a few noticeable milestones. It announced this week that more people are now using its online payment platform than all the plastic cards usage combined.

Last Saturday, Paytm handled over 7 million transactions that amounted to more than Rs 1.2 billion ($17.5 million). In comparison, debit and credit cards account for over 6.9 million daily transactions(opens in a new tab), according to data provided by the Reserve Bank of India (RBI) in August 2016. (Plastic cards have likely seen a surge in their usage, too, but updated figures aren’t available yet.)

The Indian government invalidated Rs 500 and Rs 1,000 currency notes earlier this month. The sudden shortage of cash has impacted the lives of hundreds of millions of people, with snaking queues outside banks and ATMs(opens in a new tab) becoming a norm.

Paytm, much like its local competitors MobiKwik and Ola Money, has been cashing in on the sudden cash crunch in India. Paytm's parent company, One97 Communications, announced Wednesday an app-based point-of-sale solutions (POS) that enables small merchants without card swiping machines to accept card payments directly on their phone.

Paytm POS app will accept all debit and cards with zero transaction fee till the end of the year. Paytm founder Vijay Shekhar Sharma said he expects to see over 10 million Paytm POS downloads by the weekend.

Paytm is also poised to surpass the number of point of sale terminals across India with its new POS app.

If that happens, Paytm will also surpass the number of point of sale terminals across India. The country has roughly about 1.5 million card machines. "There are about 550 million people with debit cards in India. We just don't have enough POS machines. We expect about Rs 300 billion ($4.3 billion) gross transaction value on Paytm platform by the year end,” Sharma said.

The RBI today doubled the limit for the money people can keep on these e-wallets from Rs 10,000 ($150) to Rs 20,000 ($300) every month. It's a welcome development for many in India. Prior to this, many had to either juggle between multiple mobile wallet apps, or be content with the $150 limit.

Even small-time merchants will now be able to transfer up to Rs 50,000 ($750) to the bank account linked with their wallet every month, hence encouraging them to use digital wallets at a time when cash is hard to come by.