Anirudh RegidiApr 10, 2017 09:47:06 IST
The demonetisation of Rs 500 and Rs 1,000 notes in November last year was a move designed to flush out black money and push India into the age of digital transactions. While success in the former department might be questionable, what of the latter?
To figure out if demonetisation had any impact on Indians and the mechanism of cash flow in the country, we analysed data supplied by RBI with regards to cashless transactions in the country.
This data includes the following:
- Transaction volume at point-of-sale (POS) machines via credit card (CC) and debit card (DC) in the period of October 2014 to February 2017.
- Total amount transacted at POS machines via CC and DC in the period of October 2014 to February 2017.
- Total amount transacted via the Bhim app from December 2016 to February 2017.
- Total amount transacted via UPI from August 2016 to February 2017.
Transactions performed at ATM machines were ignored as these would simply be cash transactions.
With the demonetisation of notes in November, digital wallet services saw a brief, but meteoric rise to popularity. In their own words, wallet services like Paytm and Freecharge saw as many transactions in the months following demonetisation as they normally saw in a whole year.
Various reports suggest that the likes of Paytm and Freecharge saw the number of transactions rise by as much as 1,500 percent. While there is no concrete data on the number of transactions performed via these apps, there’s a clear slowdown in their use. In January, Paytm went from 130 million users to 190 million, but in February, it only went from 190 million users to 200 million. This is still growth of course, but it’s also slowing down.
Banks also reported a surge in CC and DC transactions in the months of November-December 2016, particularly for small amounts. This is significant because it meant that people were using their cards for transactions that were traditionally cash-based ones. This could include buying daily groceries, meals, etc.
The October 2014 to March 2016 period saw the number of CC/DC transactions go from a little over 100 million to around 200 million. It’s not a bad rate of growth for a two-year period. However, the March 2016 to November 2016 period saw this number jump from around 200 million to 300 million. Better yet, post-demonetisation (in November 2016), this number jumped from around 300 million to well over 500 million transactions.
Post-December, however, as the cash situation settled, the total number of transactions fell from over 500 million to around 350 million transactions. The rate of fall isn’t as drastic as the rate of increase in transactions from October to December 2016, but the downward trend in CC/DC use is very clear. At the rate at which CC/DC use is falling, we’ll should reach pre-demonetisation levels within 3 months.
Looking at the graph indicating amounts transacted via CC/DC, the same trend is mirrored. There is a steady decline in the total amount of money transacted since December 2016.
Looking at the graphs for both Bhim and UPI transactions, it’s obvious that the usage of these services is steadily on the rise. That said, the amount transacted via Bhim is a thousandth of that transacted via CC/DC. The amount transacted via UPI is a hundredth that of CC/DC transactions.
Unfortunately, given the relatively low volume of UPI and Bhim transactions, it’s difficult to argue that the services are a success just yet. The use of these services is increasing, but it’s far from reaching saturation and it’s not even competitive with CC/DC transactions.
Dilip Asbe, Chief Operating Officer of the National Payments Corporation of India (NPCI) is acutely aware of this, as is evident from a recent tweet of his.
— Dilip Asbe (@dilipasbe) April 5, 2017
The likes of UPI and Bhim still have a long way to go before they achieve widespread acceptance.
From this data, we can safely conclude that demonetisation has made some impact on the way people transact, but looking at the trends in the last three months, it seems to be temporary.
We are still awaiting the March 2017 data, and will update our graphs accordingly.
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