Demonetisation: Swipe machine shortage, security worries threaten to sour cashless dream
In order to shift Rs 46,000 crore worth of transactions per month to digital mode, the country needs an additional 20,000 PoS machines urgently
The government has a humongous task ahead driving transition into cashless economy as the public is forced to go cashless with inadequate infrastructure and security system in place. The lack of digital preparedness is already threatening to hit the consumption growth, data shows.
The data released in a State Bank of India report shows that value per card transaction has declined though the volume of transactions has increased post the surprise demonetisation of Rs 500 and Rs 1,000 notes on 8 November. India's largest bank has pointed out that the reason for the decline could be the woeful shortage of PoS machines in the country. India has 15.1 lakh such machines, while it would need another 20 lakh to meet the demands of cashless transition, according to the report.
Another reason for the fall in transaction value is the general slowdown in spending as customers are holding on to whatever little cash they possess. If this trend continues, it is likely to hit the corporate earnings and in turn economic growth.
"Despite Government’s move to reduce the cash transactions in the economy, people are standing in queues to withdraw money from banks and ATMs. It is not easy to shift all the people to use digital mode in their day to day transaction, which may be due to a number of reasons like level of education, acceptability of technology, lack of infrastructure etc," the SBI report has said.
The comment by the SBI should come as an eye-opener for the government and RBI officials, who have been insisting that enough cash is being dispensed to meet the demand from the customers.
Forty-four days have passed after the demonetisation announcement. People are still thronging the ATMs and bank branches to withdraw cash. According to the RBI, from 10 November to 19 December, banks have given away Rs 5,92,613 crore worth notes to the public.
The central bank has issued a total of 22.6 billion pieces of notes, of which 20.4 billion belonged to small denominations of Rs 10, Rs 20, Rs 50 and Rs 100. As much as 2.2 billion were higher denominations of Rs 2,000 and Rs 500. However, the bank has not yet given the data on how many Rs 500 notes have been dispatched.
The value of currency the RBI has released into the system is just about one-third of the Rs 15.44 lakh crore that was in circulation when the move was announced. This wide gap is the reason for the present cash crunch. What is making matters worse is the shortfall of PoS machines in the country.
The SBI report notes that over the last 6 years the average withdrawal from an ATM was around Rs 3,000 in a month. The bank calculates that this would mean around Rs 8,000 crore is required per day for smooth functioning of ATMs.
"This translates into Rs 3.7 lakh cash requirement per ATM per day to meet the customers requirements. This may be the amount of cash required for the daily transactions, a part of which needs to shift to digital," it notes.
However, the immediate transaction value that needs to be shifted from ATM to other digital channels is a whopping Rs 46,000 crore per month, until the limit of Rs 2,500 at ATMs remains imposed, it said.
By this calculation, the bank doesn't expect the government to withdraw the limit until January. However, that seems to be a very conservative estimate.
Govt needs to step up
In order to facilitate such a huge volume of transaction to digital, the government needs to step up. As the report notes, first and foremost a better ecosystem of incentives for the banks to deploy swipe machines has to be put in place.
"Simultaneously, the objective of the government should be very quickly bring on-board new merchants, particularly small and marginal traders, grocery shops, etc. on digital platform," the report has noted.
As noted earlier, India has just 15.1 lakh PoS machines. In order to shift over to cashless, there is a requirement of 20 lakh more - that is more than double. When will this be met is anybody's guess.
Along with it, there is an urgent requirement to invest in IT security systems, which also needs to be incentivised by the government, says the report.
This is a big challenge given the country has just been witness to one of the biggest ATM security breaches, in which lakhs of debit cards of various banks were compromised. The banks were then advising the customers to not use ATMs of other banks. Post the demonetisation which happened in a few weeks' time after the debit card scare, this advise, interestingly, suddenly saw a reversal with the government itself asking the public to go to any bank ATM that has cash to withdraw money.
Clearly, in passing such an order to banks and customers, the government has just ignored the safety aspect completely. And that too at a time when the technological advance has rendered financial frauds boundary-less.
In a survey of 309 top corporate executives in India, consultancy firm Deloitte found 70 percent of the respondents expected frauds to increase in the next two years. And the survey was held well before the demonetisation started - during 1 October to 30 November.
Post the demonetisation, which has quickened the pace of transition to cashless, the possibility of frauds must have just increased.
"SMEs are struggling to mitigate even well-known frauds such as bribery and corruption. Given the inherent limitations of these organisations, there is need for government intervention to help tackle fraud," said Rohit Mahajan, Deloitte India Head (Forensic - Financial Advisory), after releasing the sruvey resultes on Wednesday. According to him, the government start creating awareness about frauds and security systems among the small firms, which are all the more vulnerable to frauds.
The government, however, seems to be busy changing rules on a daily basis and making unsubstantiated claims, ignoring the pain that the customers, banks and companies are going through. It is high time it pulled up its socks and dealt with the emerging situation which seems to be already spinning out of control at least in some pockets.
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