In digital era, India refuses to let go of cash

Seeing Paytm’s bumper ₹18,300 crore listing might make you think that digital payments are set to end cash transactions. But Indians are nowhere close to giving up on currency notes and coins in favour of digital transactions, the claims of demonetisation backers notwithstanding.

The amount of cash in circulation (CIC) in the Indian economy has only risen since demonetisation. In FY18, CIC, as percentage of GDP, was 10.7% (or ₹18,30,000 crore), but has since grown to 14.5% (₹28,50,000) in FY21.

Even on the fifth anniversary of demonetisation which, many thought, will herald a new dawn of digital payments, most digital payment fintechs remain loss-making (this includes Paytm). And they must spend millions to acquire customers and merchants.

But cash — a near 1,000-year-old medium of paying for goods and services — is anonymous, convenient and, according to data, preferred hugely by Indians. According to a recent study by U.S. market research firm Frost and Sullivan, 90% e-commerce business in India happens through cash on delivery (COD).

Further, in places smaller than Tier-I and Tier-II cities, COD is the preferred mode of commerce, too. Approximately half of all transactions in biggest Indian cities involve COD. In lower tier regions, this may rise to 70%; in Tier-III regions, nearly 90% transactions use COD.

As e-commerce penetration increases, especially in smaller towns, the share of COD payments is expected to rise further. It seems ironic but e-commerce needs to lean into cash for survival. In fact, COD is rising majorly due to expansion of e-commerce.

“If these (e-commerce businesses) really want to entrench in Bharat, setting up a COD operation is imperative. That demonstrates the role cash plays in the life of an everyday Indian,” says Anush Raghavan, President, Cash Business, CMS Info Systems Ltd, India’s largest cash management business that has most India banks as customers.

Raghavan is warned annually about some or other new tech that will kill cash. "First, it was Point of Sale machines and debit cards posing the risk, supposedly; then it was digital wallets and UPI. But the death of cash is greatly exaggerated.”

Stanley Johnson, Executive Director at AGS Transact Technologies Ltd, also a cash management business whose customers are banks, petrol pumps, large retail customers and in-transit (metro ticketing, turnstiles, etc.) sectors recounts confidently. An April 2021 RBI report observed, ‘for small value transactions of up to ₹500, cash is used predominantly.’ Further, CIC has increased from approximately ₹18 lakh crore in the pre-demonetisation era to about ₹29 lakh crore in October 2021.”

The festive months of October and November—the biggest for shoppers and merchants—show an annual bump in cash use. By this seasonal matrix, too, cash beats digital payments.