India’s digital payment economy

India is a country where 97 per cent of transactions by volume still happen with cash. Is such a cash-dependent economy ready for the digital revolution?

This question has been put to the test after the demonetisation of 86 per cent of cash in the country in November 2016. Since then, consumers from various income strata, as well as large and small local vendors, have quickly adapted to new and alternative payments including digital wallets and banking apps.

"Indian consumers are quickly adapting to new and alternative payments including digital wallets and banking apps."
Priyanka Bagde, Survey Analyst, Euromonitor International

Although a disruptive move, demonetisation has seeded the growth of digital finance in India.


India benefits from a large (and growing) pool of digitally evolved consumers. Today, India is the second-largest online market with over 348 million internet users, ranked only behind China.

Despite the large base of internet users in India, only 26 per cent accessed the internet in 2016. However penetration is rapidly increasing and by 2021 the Indian internet userbase is forecast to reach 555.3 million.

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Mobile-commerce has boomed in Indian second-tier cities in large part due to the availability of inexpensive smartphones.

Mobile retailing has grown significantly from 5 per cent in 2012 to 17 per cent of total online retail sales in 2016, with faster growth than internet retailing through other devices and channels. Online retailers offering huge discounts on purchases via mobile app drove much of this growth.

While the cashless economy will continue to grow via plastic cards, its growth will be restricted mostly to major cities due to a lack of infrastructure supporting card payments in rural regions.

Indeed, such lack of infrastructure has been the primary reason card transactions remain at less than 1 per cent of total transactions and will continue to be a major obstacle.

In such a scenario, mobile wallets and banking via apps easily downloaded onto a smartphone offer the only two instruments that could break the monopoly of cash transactions in India in near future.

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The Indian government is determined to spread financial inclusion by ensuring banking services are available for all.

The Reserve Bank of India (RBI) issued licences to 11 companies in 2014 to operate as payment banks and of those Airtel and Paytm have started operations. More recently, India Post, which is a government-operated postal system, got the nod to operate as a payment bank.

Efforts by both the government and the RBI over financial inclusion through mobile phones will help more consumers adopt m-banking and commerce in coming years.

While consumers are getting habituated to using apps, many private players including e-commerce companies, banks, and individual mobile wallet companies are offering payments, shopping, bill and peer-to-peer payment services with huge discounts and cashback offers in order to woo and bring consumers on their platform.


Reluctant small merchants trying to hide income to reduce their tax bills might act as a deterrent to the growth of a cashless economy. However, such merchants are already suffering from declining consumer attention and will likely quickly adapt to the new world.

Age-old cash habits could act as another deterring factor, especially now when cash is back in circulation and the effect of demonetisation is fading.

Both government and private players should keep consumers motivated to use cash-alternative payment instruments.

The Indian government has already announced a series of incentives from free insurance to discounts on digital payments which will continue to boost consumer motivation to become and remain cashless.

Priyanka Bagde is a Survey Analyst with Euromonitor International

You can read Euromonitor International’s full article HERE

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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