Despite 110% increase in m-Wallet transactions since demonetisation, there are hurdles that still need to go

Ever since the prime minister demonetised the Rs 500 and Rs 1000 notes from circulation, there has been one category that has been seeing massive growth, every month. That category is the mobile wallet category.

Ever since the prime minister demonetised the Rs 500 and Rs 1000 notes from circulation, there has been one category that has been seeing massive growth, every month. That category is the mobile wallet category. Towards the end of the year, the government also released the Bhim UPI app to get more people to transact through their smartphones, and the number of downloads it has seen has been nothing short of phenomenal.

Unified Payments Interface (UPI), USSD, e-Wallets have all together caused a massive jump in the total number of mobile wallet transactions from October (pre-demonetisation) to December (post-demonetisation). According to RBI's Payment System Indicators, there has been a 114 percent increase in volumes of m-Wallet transactions from October to December 2016.

In terms of pure numbers that is from 99.57mn to around 213mn transactions in the three month period. In terms of value transacted, it has jumped from Rs 33.85bn to Rs 74.48bn - which is a 120 percent increase. These numbers have been minimal over the same period in 2015 and 2014.

Cards m-Wallet  Mobile Banking
(Rupees Billion)
(Rupees Billion)
(Rupees Billion)
Dec 1,025.48 1,801.29 213.11 74.48 89.61 1,485.83
Nov 906.78 1,833.46 138.09 33.05 85.39 1,374.43
Oct 1,032.14 3,069.65 99.57 33.85 78.08 1,135.78
Dec 886.02 2,565.13 53.70 20.63 39.49 490.29
Nov 840.98 2,509.56 49.83 19.31 40.45 334.71
Oct 872.69 2,563.44 49.58 15.45 32.48 305.68
Dec 721.21 2,285.17 23.19 8.28 16.78 113.23
Nov 684.38 2,086.79 21.38 6.97 15.28 97.71
Oct 731.32 2,215.71 21.39 7.01 14.86 90.35

For instance, in 2015 and 2014 there was an 8.3 percent and 7.7 percent increase in volumes of m-Wallet transactions respectively. In terms of value transacted growth, it was 33.5 percent and 78.1 percent in 2015 and 2014 respectively.

In the same October to December 2016 period, card transactions saw a 0.64 percent decline in volumes and over 70 percent decline in value transacted. In 2015, these numbers were 1.5 percent increase in volumes and 0.07 percent increase in value respectively.

Mobile banking has been on a steady uptick over the years, except for the slight drop in volumes of transactions (but not value transacted) the Oct to Dec period for always seen an increasing trend for the last two years.

Demonetisation – a shot in the arm for m-Wallet transactions

As can bee seen from the numbers in the chart above, over the three years, there has been a steady increase in volumes of transactions across cards, m-Wallets and mobile banking. The drop in card transactions volume in November 2016 is understandable as there was a shortage of cash flows to ATMs, which forms a major chunk of card transactions over POS machine sales. For instance, Debit card transactions at ATMs fell from 802.06mn transactions to 574mn transactions from October to November 2016.

Since demonetisation, transactions using digital payments have seen close to a 300 percent jump. This was bound to happen as the cash flow, and the lack of Rs 500 notes, along with a limit on daily cash withdrawal really hit the cash circulation in the three month period. Till the end of December last year, there was shortage of cash in the system.

According to Sandhya Menon, company spokesperson for CMS Infosystems which service close to 92 percent of ATMs across India, "Before demonetisation, CMS representatives used to visit close to 30,000 ATMs on a daily basis to top up cash, but post demonetisation, the peak daily visits had dropped to just 13,000 ATMs." Combine this with the lack of Rs 500 notes, and ATMs only dispensing Rs 2000, getting the change for which was increasingly difficult due to little availability of Rs 100 notes, cash transactions had seen a definite dip.

So are we really approaching a card-less future?

This growth in m-Wallet transactions adds gravitas to what Amitabh Kant, Niti Aayog CEO had said at the Pravasi Bhartiya Diwas, " 2020 my view is that in the next two-and-a-half years, India will make all its debit cards, credit cards, all ATM machines all POS machines totally irrelevant."

If we purely look at numbers, that does not seem to be the case, just yet. Since 2014 onwards, and even earlier, there seems to be an increasing trend as far as card transactions and mobile banking transactions are concerned. Yes some month seems spikes followed by a drop in the succeeding months - pre-Diwali months and December/January period. But this trend has been observed even in years past.

Thanks to the push by digital wallet companies, and initiatives such as UPI, mobile transactions have seen a massive jump. But it would be premature to say that cards would be completely irrelevant by 2020. According to CMS Infosystems' Menon, ATMs are not just doing the job of dispensing cash, but also a lot of other work that would previously only be done at your bank's branch - such as issuing a cheque book, getting a bank statement, changing PINs and so on.

Sure, banking apps can do these functions as well. But the state of security on a lot of these mobile wallets and apps is still not cutting edge. You surely do not want to leave any shadow of doubt on the security front, as your financial data would then be at risk. We have argued in the past how existing regulations like the RBI’s Cyber-Security Framework for Banks and the Guidelines on Information Security, Electronic Banking, Technology Risk Management and Cyber Fraud, have proven to be inadequate. We do not have a privacy and data protection law yet

It would not be surprising if a large part of the population bypasses card transactions and goes to mobile wallets directly for digital transactions. We have see something similar with people getting on to the internet is concerned, where mobile phones really drove the numbers of people coming online. Mobile phones should and probably will do the same for cashless transactions as well.

Apart from security, there are other factors as well which will need some sort of intervention on the mobile and digital payments front. Factors such as dispute resolution, insurance for the transaction and so on. So it’s like if you face any problem while transacting who will you approach to get the issue resolved. And in that interim, who will reimburse you. So these mechanisms are being put into place.

So yes, m-Wallet transactions are slated to see a growth. We have started on the right foot. With initiatives such as UPI, which has no parallel anywhere else in the world, digital is the way forward. But there are a lot of regulatory factors which need to be addressed, before Kant's prophecy comes true.

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