Can government make India go cashless in 2017?

The year 2017 is an important milestone for India and would mark our transition from a cash economy to a less cash and a digital economy. But the buzzwords like “less cash”, ”cashless” and “digital” do not really convey the range and diversity of the transition. It is actually a transition to a new social and cultural pattern. Migrating from a cash economy to a digital economy requires a big cultural and social shift, and a recast of the whole mindset. Making gadgets available to the society will not help unless we bring about a social and cultural transformation.

The tech class has poor exposure to critical social theory and should try to understand the impact on the ground. There is a huge empathy deficit. The new revolution will have better chances of success if it is driven less les by financial punditry and more by empathetic governance.

The aversion of the other India to digital finance has more to do with their aversion to everything that has to do with technology. And this stems from their lack of trust in it. Although we must continue to make the case that responsible digital finance is good business, we know that isn’t enough.

Independent and well-resourced regulators, consumer groups, and other organisations are critical to ensuring the consumer protections afforded by law and regulation are actually followed and enforced. The Helix Institute of Digital Finance’s latest survey of agent networks in Uganda highlighted just how commonplace fraud and robbery is for agents, not just in Uganda, but worldwide. And customers continue to experience trust-eroding problems in accessing their money.  

For digital finance to be the transformative tool, consumers must have greater confidence in the markets and services should be suited to the customers’ needs and delivered responsibly, at a cost both affordable to customers and sustainable for providers. The painful reality is that providers too often focus on short-term incentives at the expense of long-term consumer trust and loyalty.

India remains one of the most cash-dependent countries in the world. Just over half of the nation’s adults have bank accounts, a precursor to using digital payments. The overall snapshot of the ecospace for digital financial inclusion in India, when seen in the statistical indicators, may not is very grim even though it is bad by standards of peer developing countries. But a high resolution picture will tell how pathetic the reality is.

A majority of rural branches of banks are manned by a single junior executive with support of one, two, two or three assistants depending on the size of population served. On the contrary, urban bank branches are very heavily manned. Staff in rural centres live in great physical, mental and emotional discomfort and they have to stay for long periods from their families because leave is difficult as replacements cannot be provided frequently. Moreover, there is a high rate of attrition among rural staff and most of the boys take up rural jobs asa temporary solution till they get a proper job in cities.

The financial and technological infrastructure in rural area is also bad. Just 22 percent of Indians use the Internet “at least occasionally” and only 17 percent have a smartphone, according to a Pew Research Center report. 11 percent of consumers were using a debit card in 2015, while most retailers don’t accept cards. Between 2013 and 2015, debit cards grew twice as fast as the number of POS machines and one-and-a-half times the number of ATMs, with the majority of new infrastructure taking root in urban centres.

Card acceptance infrastructure struggles to keep pace with India’s growing population: in 2014, there were 18 ATMs and 13 commercial bank branches per 100,000 adults — in comparison, the number in Brazil was 129 and 47 respectively. According to a December 2015 Reserve Bank of India report on “financial inclusion in India”, each rural and semi-urban bank branch serves 12,863 people compared with an urban and metropolitan branch which serves just 5,351 people. The spread of ATMs too is skewed in favour of urban centres. Delhi, for instance, has 9,070 ATMs, more than Rajasthan, the largest state in terms of size.

A survey of PMJDY customers conducted by a financial inclusion consultancy found that only 33 per cent of all beneficiaries were ready to use their Rupay cards. The others were bewildered by the complicated PIN and activation procedures. Inconsistent electricity and sporadic internet access further eroded customers’ trust in ATMs and POS machines, with one failed transaction enough to make an entire village swear off formal financial institutions.

The World Bank’s Global Findex shows that Indians are significantly less familiar with digital banking — the use of credit or debit cards, making transactions using mobile phones, and using the internet to pay bills — than their peers in middle-income nations.

India’s financial digitalisation has actually gone into overdrive purely on account of demonetization. While some of the boom in additional usage of digital payment systems won’t last as cash is restored to India’s economy — and people go back to paying with cash and start storing gluts of cash as they've always had — a reasonable portion of this transition may stick in the form of new long-term users.

Most people are using these as a temporary measure and an alternative to overcome an abnormal situation they are likely to revert to cash because of the same reasons for which they had not signed up or used these until now - primarily, charges and fear of surveillance and disclosure of actual transactions.

There are also marked class issues which are built into India’s cashless transition. India is a country that has one foot in the future and the other in the Stone Age — almost literally. India had the most vibrant and innovative high-tech ecosystems in the world; but alongside it, exists a planet of hundreds of millions of people living in villages who are happy with a technology that’s hardly more sophisticated than a bullock cart and a plow. Only 17 per cent of the India’s population currently has access to a smartphone.

Thus, moving to a digital and cashless way of life involves a shift in cultural pattern, and such patterns are often hard to break. But once they are broken and new ways emerge, new patterns become solidified as societies update the way they function.

Awareness has to be built in the minds of the people of the net gains of digitization for the country. Digitalising a wider swath of the economy is meant to be a fix for many segments of India’s society that the government plans to reform. It creates a way for all purchases to be tracked and recorded, which can limit the growth of the black market as well as stemming the flow of capital to terrorist activities.

Financial digitisation also enhances the government’s ability to strengthen its taxation systems. India’s informal economy is responsible for roughly 45 per cent of GDP and 80 per cent of employment, which means that large sections of people remain outside the tax net despite having income that makes them liable for payment of tax. Currently, less than five percent of Indians declare their incomes and one percent pay income tax.

Going by the experience of Brazil and Kenya, India’s challenges are big but manageable. Banks in Brazil were the first to take deposit and withdrawal transactions out of banking halls and into retail shops that exist in every village and neighbourhood. If you can find rice and soap and Coca-Cola at these shops, why shouldn’t you also find basic financial services there? The Kenyans discovered that with the right technology, exchanging money between physical and electronic forms can be done securely, and as naturally as exchanging notes for coins.

More disruptively, in Kenya, the mobile-phone operator Safaricom has developed a network of 30,000 stores through which its customers can cash in and out of their M-PESA mobile wallet accounts. That’s 200 times the number of branches operated by the largest bank in the country. 17 million Kenyans — about three-quarters of the adult population — can send or receive money via cell phone. 

Cashless is now the big buzzword in India, and the ball is rolling as the world's largest cash economy begins going digital. Seeing the digital landscape of other developing countries, we can be certain that in setting a huge goalpost for digital finance, we are not pursuing a chimerical dream. But the pace of this journey will have to be determined by the ability of our citizens to cope with it. We should not take to a highway that leaves millions of it citizens below.

What we need for any revolution to succeed is humility. When we design solutions that recognise everyone as equal partners, we have a real chance to achieve our national goals. This logic comes from the power of empathy — not a form of empathy that comes from superiority, but one born from a profound humility.