How can India go cashless if online payments aren't seamless?

There must be no hoops and jumps to make even a Rs-1 transaction.

 |  3-minute read |   03-12-2016
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The November 8 demonetisation drive has taken the economy by surprise. Removing 86 per cent of the currency in circulation has led to a massive cash crunch, even though fresh cash of all denominations is being "pumped" back furiously into the economy, with printing mints on three shifts.

(There is still more than 50 per cent gap between the November 8 position of the money in circulation and current availability.)

Two questions are moot (a) Is it enough (b) Will there be an attitudinal jolt among ordinary Indians to adopt digital payments?

The issue of fungibility will decide that. The principle is simple.

In practical terms, it's best described as one of equivalence or substitutability, eg the Rs 2,000 note is practically quite useless, as I found to my chagrin recently at a tony eatery at Phoenix Palladium, Mumbai. The note was refused as "legal tender" for  two glasses of beer worth Rs 323!

Because the "change commission guy" who normally brings them change worth Rs 5,000 every day (at 3.5 per cent commission) now comes once in ten days! Sometimes not at all.

So unless high denomination notes can be converted into lower ones or any permutation and combination of lower denominations, without cost, inconvenience or seigniorage at any point of time, or "tendered" in exchange for goods and services with proper chhutta in return, it is as good as monopoly money. Just better looking! And doesn't contribute to velocity, just because it is printed and is disbursed.

In essence a measure to measure.

And right now the answer is: More is less than enough!

On the second question. 

pic-embed_120216072616.jpg Friction in use of various electronic channels has to be zero. (Photo: Twitter)

Firstly, cash and digital equivalence has to be on the same lines to ensure inter se substitutability; the food court in a mall is a good example - load your food court plastic card, redeem at food stalls on a par, then cash out the balance when done.

So cash-in-cash-out is the key between store of value instruments. So both have to be equally fungible for frictionless transition from one to another.

Secondly, friction in use of various electronic channels has to be zero. And I mean zero! Nada. No hoops and jumps to make even a Rs 1 transaction, including authentication.

Imagine backed up at the DND, Worli Sea Link or Vashi Toll plaza at peak hours, as you struggle to understand which acronym of multitude digital payment options such as USSD, UPI, IMPS, PPIs, AEPs, SMS/IVR, etc (not to mention cards, apps, wallets) is being accepted by the plaza. Which one to use, and how.

Thirdly, incentives/disincentives for use of one over the other have to be in play to get the desired behaviour. Whether that is on the merchant side, bank side or customer.

These three will ensure ubiquity. And ensure the road to a cashless economy like what we are aspiring to, Sweden or Japan.

Till then, the intrinsic merits of economy of trust, Indian-style, based on long-lasting impression of trust and reliability - the emotional loyalty among consumers and sellers - will have to make up for drop in velocity of money and quantity of money (for those economics-oriented).

And normal economic activity bumbles along on IOUs and dollops of biradari!

Also read: Demonetisation and black economy: Rhetoric versus reality

Writer

Probir Roy Probir Roy

The writer is a serial tech entrepreneur, trustee, commentator on public policy and FinTech. He is an independent director on the board of Nazara Technologies.

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