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Cashless in Mumbai

Rupees (Credit: Connie Ma)

“Are you sure you want to do this?” My wife Richa asked as I shared my idea for an experiment: to stop using cash and instead use only digital forms of payment. Colleagues said going cashless in India is difficult and that I wouldn’t be able to manage more than a week: but on 13th March 2016 I began my cashless journey in Mumbai. The 85-day adventure involved:

  • Digitization of all cash transactions
  • Taking every form of transport from auto-rickshaw, taxi, Mumbai local trains, Navi Mumbai Municipal Transport Buses, the Hirkani bus from Pune to Mumbai, and Kaali Peeli (regular black and yellow cabs)
  • Identifying a barber (within my usual budget)
  • A long walk when my mobile got switched off
  • Giving up on tapri ki chai (masala tea from a local tea stall)
  • Convincing the entire family of my maid that I will pay her salary – just that it will go into her bank account rather than be paid in cash
  • Pre-payments to my laundry man, vegetable and newspaper vendor to prove that I mean business
  • Long conversations with kirana (neighbourhood stores) on the benefits and challenges of cashlessness

Tapri ki chai (Credit: Karl Grenet)Here’s what I learned.

Transportation will be the driver of cashless because of the low cost of tickets but high frequency and impact of purchases. The one who wins this will win consumer mindshare and wallet.

Singapore’s My MRT Card, Hong Kong’s Octopus and London’s Oyster are clear examples of how a transit solution can help in catalysing the creation of cashless ecosystem. In cities like Mumbai where commuters take several means of transport to reach their workplace, a cashless solution in this sector impacts them the most.

App-driven personal transit is also spearheading the financial inclusion journey with direct bank account credits to the driver’s account. These account credits also help in creating a transaction history, assisting banks in assessing the ‘ability to pay’ and therefore helping drivers receive loans in the future, if required.

I used a total of 18 services, ranging from groceries to my salaried maid. Payments for these could be converted to digital with a little bit of effort.

Here are the challenges:

  1. Penetration of smartphones: India has over 1 billion mobile phones but almost 80 per cent are not smartphones. Clearly, phone-driven low cost solutions like USSD real-time messaging, affordable phones like STK, thin SIM cards offering dual network access or open-loop networks are required to reap the benefits of the ‘mobile first’ financial inclusion revolution.
  2. Sustainable growth of wallets: Mobile wallet providers flush with venture capital have helped a large number of Indians adopt mobile payments. They have also forced banks to innovate and come up with their own wallet solutions with consumer experience and convenience at their core. Therefore, it will be interesting to observe how many of the independent wallet companies survive.
  3. Regional languages: My maid is a Maharashtrian. My grocery shop owner is a Gujarati. My newspaper vendor is from Uttar Pradesh. They all need a solution in their regional language.
  4. Handholding: My maid had never visited an ATM machine in her life, so I had to accompany her to teach her to operate the machine.
  5. Neighbourhood kirana merchants: This is a tough sector to crack. They need to ask whether cashlessness will increase footfall, increase consumption from existing customers and affect their tax bill.
  6. Street vendors: None of the current digital cash options are cost effective enough to work with this segment.

Bombay Laundry (Credit: Eric Parker)Going 97% cashless is possible in India’s top ten urban centers. However, the USAID report “Beyond Cash” finds that an overwhelming 97 percent of retail transactions in India are in cash. What happens if these are digitised?

  • Impact on the black economy: Estimates of the size of India’s black economy range from 30.1% to 75.2% of GDP. Just think of the tax revenue and productivity this money could generate. If even 25% ($550bn) of this is brought into the tax net it has the potential to bring millions above the poverty line.
  • Contribution to GDP and job growth: The latest Moody’s Analytics Report estimates that increased usage of electronic payment methods have added $ 6.08Bn to India’s GDP between 2011-2015, adding 3,360,000 lakh jobs in the same period.
  • Cost of cash: With 76.5 billion (2012-13 RBI data) coins and notes in circulation, the operational cost of managing currency operations is $3.5bn.
  • Cost of liquidity management: Corporates spend a large amount in managing cash in their value chain.

There is clearly a once in a lifetime opportunity extend financial inclusion to a billion people under sustainably and profitably.

The Indian government is already moving to expedite electronic payments acceptance both at consumer and merchant level.

Granted, mot everything is perfect in a cashless environment.  An Oyster card system glitch in London at start of 2016 resulted in 100,000 free rides and £250,000 loss of revenue in just a few hours. The US EBT system – which provides free groceries to disadvantaged Americans – shut down in 2014. In 2013, record usage caused the Belgian card payment system to fail for several hours.

Yet the biggest guarantee of a cashless society is confidence in a payment alternative that is always acceptable, anywhere you go.

“So now that you are done with the cashless experiment, what’s next?” my wife asked.

Originally posted on LinkedIn Pulse. Read the full story.

Abhishant Pant
Abhishant Pant is a payments professional based out of Mumbai, India. He believes that mutual sharing of knowledge and dialogue are the key to exploring the self and the world. He writes regularly on payments and believes in sharing experiential learning. Follow his journey on LinkedIn: https://in.linkedin.com/in/abhishantpant

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