The Monday mindset: 6 March 2017

India’s payments scene… what’s the story on the ground?

Fintech zeitgeist! Every Monday, we might look back at last week; look ahead to this week; share a few thoughts (our own or others); or discuss anything that catches our eye. This week we welcome the views of guest writer Soumik Roy as he gives us the lowdown on electronic payments in India.

India’s Prime Minister Modi demonetised INR 500 ($7.50) and INR 1,000 banknotes on 8 November 2016. Since then, new INR 500 and INR 2,000 banknotes have been introduced, but circulation is still tight. Limits on withdrawal of notes from banks and ATMs have still not been removed, and ordinary citizens still find themselves a little inconvenienced.

The headlines suggest that electronic payments have really picked up in the period following the ban on old currency notes. Airtel and India Post launched payment banks, and Paytm claimed to have onboarded 200 million e-wallet users and chose to convert into a payment bank following its success. But what’s the story on the ground? How many people actually use these e-wallets and payment banks on a daily basis? To find out, I visited vegetable and fruit vendors and mom and pop stores in eight different cities in India – and I made sure to ditch my Uber and hail local taxis wherever possible.

Mumbai, Delhi and Chennai, three of the metro cities I visited, seemed to have made good progress with electronic payments. Many street vendors, though not all, accepted some form of electronic payment. The most popular option seemed to be Paytm. Mom and pop stores, on the other hand, were equipped with POS terminals or card machines and accepted Paytm. I spoke to a few of these vendors, on the street and in small shops, and here’s what I learned:

• Paytm was a good choice because vendors could send money to their bank account for free and because most of their customers had the app
• Some vendors seemed concerned that Paytm only allowed them to accept payment up to INR 50,000 per month – at present, their workaround is to use different numbers and bank accounts at their shop
• Their loyalty to the platform only stems from the fact that it’s what their customers use – if customers shift to something else, they’re happy to move with them. I was curious to know because the Indian Government’s Bharat Interface for Money (BHIM) App is doing pretty well on Google’s Play Store and I was wondering if they were willing to move to the platform developed by the National Payments Corporation of India

In smaller cities, the adoption rate for these apps is slightly lower, but it’s still the same scene. There are just two new insights I gained:

• A lot of the people are sceptical about using e-wallets. They’re not going to get the money in their hands, they need help from someone in their family to transfer the money to a bank account, and they will need to file income tax returns which they think will be expensive as they’ll need to hire expensive chartered accountants – because they’re unaware of the Indian Government’s Tax Return Preparers programme.
• A larger proportion of people in smaller towns don’t use smartphones – which makes it difficult to accept Paytm payments.

The story with taxis is slightly different. More than half of them, whether in metro cities or smaller towns, didn’t accept electronic payment. Cash was the only option.

Reflecting back on my trips, I think the future for electronic payments in India is bright but people need some education and training. For payment banks, the future is great because some of the money on these e-wallets are being routed into payment banks – DBS digibank, Airtel, and others, and the chances of these growing is really great, especially with the high interest rate they offer.

Last week’s Monday mindset looked at the first year for Banking Technology’s new team.

If you’re interested in contributing to our Monday mindset, contact our editorial team.