The cancellation of INR500 ($7.50) and INR1,000 notes has highlighted India’s lack of digital financial options. Despite its 1.3bn population cash accounts for 96.8% of the payment transaction volume, an enormous share that is expect to fall over the next five years. Patrick Brusnahan writes

According to Timetric research, the annual value of card transactions in India is $78.8bn, with an average annual spend per card of just over $98. There is less than one card (0.63) per person and an average of only 0.26 monthly card transactions.

In contrast, China’s population has, on average, over four cards each, while Malaysia and Thailand have 1.71 and 1.52 respectively. There are digital options in the marketplace, slowly introduced over the last few years. State Bank of India (SBI) launched the State Bank Buddy digital wallet in August 2015 and, as of March 2016; 4.8m transactions worth $35.1m had been made, of which $1.8m was at merchant outlets.

Other bank digital wallets include Pockets by ICICI Bank in February 2015, and Lime by Axis Bank in September 2015. While not embracing digital options is a risk, an even worse strategy would be holding onto cash.
India’s net cost of cash – 1.7% of GDP – is high when compared with most developed economies.

This results from India’s high share of coins and notes in circulation, at 13.6% of GDP in 2015, according to the RBI. Consequently, India’s average number of per-capita card transactions lags behind leading ‘less-cash’ economies.

In 2015, India had 10 transactions per capita compared with Brazil’s 163, South Korea’s 420, and Sweden’s 429.
Despite the chaos causes by India’s cash crisis, which should not be underestimated, the silver lining is that this might finally be the boost that electronic payments need to be success in the country.

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