“Money is an idea, Backed by confidence”
~ L. Ron Hubbard ~
While the social networking sites and the media were busy debating the good and the bad of demonetizing the Rs.500 and Rs.1000 denominated notes and the introduction of new currency notes, I was noticing the behaviour of general public and the regular transactions. Here are some interesting things that I noticed:
- First obvious behaviour that could be seen in the urban public was finding ways to go completely cashless. Now this had some interesting behavioural patterns like more and more people using Uber (Paytm) and Ola (Ola money) to travel cashless; people who were not using these apps earlier have also started using them overnight for making online payments. Paytm transactions seem to have increased. Credit/Debit card payments will now obviously become the most common ways of purchasing goods in restaurants, malls, marts etc.
- To meet the daily cash needs and to exchange demonetized currency, people were crowding at ATMs and Bank branches.
- Now the question arises that why do you need cash if you can go cashless in the urban setups? Well for most of the needs it’s fine but what if you feel like having coffee at home and you run out of milk? You cannot order just the milk from your grocery app as it will cost you an extra Rs.50 for delivery (The total purchase value has to be at least Rs.500 for a free delivery). You might go to a mall and need to pay for the parking tickets; you feel thirsty all of a sudden and need to buy a bottle of water and so on. Either you need more of perishable goods than other less perishable grocery or food items or you can’t avoid other small token purchases. That’s where it gets difficult to go cashless. You need cash in small denominations for your day-to-day needs as majority of the small vendors that do not accept cards.
- How do people manage then? Especially small vendors who sell perishable goods like fruits and vegetables. From what I keenly observed off-late was that the vegetable vendors allow you to have a line of credit …… I was like, what? Why? Then I thought again and the answer was the very nature of vegetables being perishable. So, if a vendor does not let you purchase them on credit and you are all out of cash, all his stock will eventually go to waste. Some people started using paper-money i.e. your own currency. Wow…. Can you do that? Yes, of course. Why not? When people can use black money and unaccounted currency notes for their transactions, why can they not use these fragile and pseudo-currencies like paper-money (the vendor gives you a handwritten note that he owes you money or the other way round). Now some of you will ask what this pseudo-currency is backed with. The answer is trust & confidence – the most valuable thing in this world. Also, some small vendors eventually purchased the mobile payment machines or downloaded Paytm on their phones to do cashless transactions.
- Now, if I talk about the regular trade, it was low. Shops were operational for a lesser number of hours due to cash problems and some were shut. I have seen them remain closed from 2-3 days now. But why? While some shopkeepers might be having problems transacting, some might even be avoiding raids or maybe the loss from not operating is smaller than that of not converting all their black money into White. And that is going to take a while given the limits of transactions imposed on various modalities per day and per week basis. So, maybe that is keeping them busy off-site. However, other than people with black money, the folks who have suffered the most are illiterate or semi-literate people and small vendors dealing in small denomination and changes, having no bank accounts.
- One more important and amusing observation, in general, was landlords and relatives becoming all-too-friendly all of a sudden in expectation that you would allow them to convert some of their Bad money (not black money… don’t blame the colour … it compliments style …Black deserves better) to white money. Well, Sorry Boss!! Give me my rent-agreement first, that is long overdue.
- Amidst all of this, there were rumours of salt prices rising all of a sudden. Thankfully that turned out be a rumour only. However, it could have been true in some pockets of the country where people could have actually exploited the situation to hoard up the “essential goods”.
- Fuss about Paytm using PMO’s image to gain business. I don’t know why people had to make a fuss about that when one of the best ways to go cashless is Paytm. How? Well, even a small vendor has a smart phone in his/her hands nowadays. They can just download the Paytm app and be ready to make even small token transactions in a cashless way. In fact, Mother Dairy is allowing its customers to buy products using Paytm.
Fundamentally all these activities have yet again proved that money is not the currency note that you hold but it is “the liquid-capacity (or liquid asset) that you have to settle accounts for the products, commodities and services exchanged”. What you do it with is just a modality not money.
Mobile banking can be a big enabler of cashless and legitimate transactions given its growth rate of 212% in terms of value (February 2016) and 131% in volume. At present we have 12% of our GDP floating as cash in the economy (one of the highest around the world). According to World Bank only 53% of Indian population i.e. 636 million people have bank accounts, whereas over a billion have mobile phones. The percentage of internet users in India is roughly around 35% of the total population and is still growing strong. With stricter KYC procedures for mobile phone service subscription and bank accounts, the introduction of the new UPI (Unified payment system- across banks, introduced by RBI) can revolutionize our regular transactions as there are already legitimate users and bank accounts in the system. Under this system you can link your multiple bank accounts to the app and make transactions under Rs.1 Lakh from bank accounts to bank accounts (Individuals and merchants) just by sending a message to the app. It is quite simple and efficient.
- Centrum broking report titled- ‘Banking Transactions – Technological Disruption
Disclaimer: This study is based on use of information from government database, newspaper articles and internet-trends and observations in general. The data collated through different sources like RBI, World Bank have been duly credited to and are indicative in nature. The author doesn’t claim any ownership or the veracity of figures mentioned. The ideas that have been borrowed have been duly credited to and other self-proposed ideas are inconsequential and meant only for the academic-engagements of the institute.”
Author : Gaurav Chauhan
Senior Research Fellow, Great Lakes