Cashless India: what does the future hold for fintech?

By Madhvi Mavadiya | 29 November 2016

The fintech industry continues to talk about countries becoming cashless and it questions whether India is getting closer to achieving this with Narendra Modi’s ban of large cash notes. Is this a step in the right direction for fintech and the ever-growing digital payments sector? We’ll have to just wait and see, but Indians are turning to digital payments startups for help despite over 90 per cent of transactions being cash-based.

The currency policy change Prime Minister Narendra Modi proposed at the start of this month meant that all 500 and 1,000 rupee notes would be taken out of circulation, sending hundreds of thousands of Indians into queues at the banks.

Scrapping the country’s two largest note denominations has resulted in a nationwide cash crunch, but the aim to get rid of ‘black money’ seems to be working. According to Bloomberg, it could end up being the best thing to happen to online finance and bring the subcontinent into the 21st century as fintech would become mainstream.

Paytm’s founder Vijay Sharma advertised the slogan ‘Ab ATM Nahi, Paytm Karo’, which I would roughly translate to ‘While there are no ATMs, use Paytm’, within hours of Modi’s announcement. Alongside this, Alibaba have outlined plans for India’s first mobile checkout service which will accept credit and debit card payments.

Managing partner at Prime Venture Partners, Sanjay Swamy, highlighted that the fintech opportunity is now huge. “The market size question has gone away and lead incumbents will become very big very fast, and their valuations will jump in a big way,” Swamy said.

After the 500 and 1,000 rupee notes were taken out of circulation, Paytm, Freecharge and MobiKwik saw extreme growth as millions of citizens relied on digital cash. Airtel Payments Bank launched last week in Rajasthan and Bharti Airtel Ltd, the country’s biggest phone company said its retail outlets in towns and villages will act as banking points and offer services. Upasana Taku, co-founder of MobiKwik, said that this is a unique opportunity for the company and others like it.

All the reluctance and friction in adoption of digital payments has vanished overnight. We are updating our numbers every day as usage is going through the roof,” Taku said. Prior to this, Indian digital payments were expected to grow and according to Bloomberg, KPMG and CB Insights are asking people like Taku how much money she wants. As well as this, India could develop into a bigger fintech hub, despite funding falling in the second quarter of this year on a global scale.

Paytm’s user base has now reached 150 million and daily transactions have averaged at 7 million since Modi’s decision, which calculates as more than the “combined average of all credit and debit cards in India”. The central bank also helped the sector by temporarily increasing pre-payments limits and for smaller merchants, introducing measures so that they can adopt e-payments.

Customers can do day-to-day transactions using prepaid wallets. Small merchants will be able to receive digital currency without deploying physical POS terminals or other infrastructure,” said Naveen Surya, chairman of the Payment Council of India and managing director of ItzCash.

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