Cashing in on less cash

26th april


What happens to the financial health of a country when its ATM’s run out of money? Is this an indication of another disruption brewing under the surface or is it an opportunity to nudge the country towards already propagated and intensely promoted digital economy.

With ATM’s drying up in some pockets of the country, there are many grieving cash crunch. This sudden shortage is stated to be due to logistical hurdles in replenishing the machines and sudden and unexpected withdrawals. The spurt in cash demand has been attributed to the season of crop procurement, festivities and marriages, and assembly polls in a few states.

While the shortage will be met by ramping up the circulation of the currency, the crisis poses some introspection – look behind before moving forward on the digitalisation pavement.

Promotion of digital payments and moving the country to cashless transactions has been the objective of the government of India for the past one year. The government has deployed many financial, operational and regulatory tools to catalyse digital economy.

Financial tools in the form of financial incentives of cashback and bonuses to individuals and merchants undertaking digital payments. These schemes have been launched on BHIM (Bharat Interface for Money) – mobile application for enabling digital payments operated by National Payments Corporation of India (NPCI). This application enables payments to merchants through biometric authentication and transfers from customers’ Aadhaar linked bank accounts.  Platforms such as UPI (Unified Payments Interface) and Aadhaar Enabled Payments System (AEPS) are also financial tools to facilitate digital payments.

To ensure effective execution, the government has used operational tools like requesting banks to charge merchant and customers only such charges as prescribed by RBI for debit card and UPI transactions. They have requested the bank to not pass the cost of payment acceptance infrastructure to the merchant and absorb such cost by cross- subsidisation with savings from the reduction in cash transactions.

To bring the financial and operational changes into being, the government has also made regulatory changes in the legislation impacting digital payments. RBI has revised the regulatory framework for prepaid payment instruments (PPI), introduced a regulatory framework for peer-to-peer lending platforms and introduced framework for payment banks, and payment service operations (PSO).

In spite of everything moving in the right direction, low costs and sufficient incentives for using digital payments, why are we still a country depended on cold cash to fill our wallets? The government has built a robust bridge for the country to cross into a cashless economy then what hampers or inhibits the journey?

The ATMs drying out and ensuing emergency can become a warning bell for many rural and semi-urban businesses to fall into a digital payment business model. To support these businesses into making the transition, we need retail-tech innovations which help the business manage upstream and downstream payments in the digital currency. The entire ecosystem – right from the farm to the table has to go on wire money.

The recent cash crunch and its consequent upheaval among the populace is an opportunity for the entrepreneurs, retail retch start-ups, venture capitalist and investors to evangelise digital payments based business

The retail ecosystem players, PSOs, banks, payment platforms and consolidated retail solution companies should make good of the crisis by using it as an opportunity to propagate digitalisation.

It is time the public and private sector joined hands to give our country the digital push and make legal tender a ‘click’ away.