Big Jump in Cashless Transactions

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It is very likely that Rs 15tn of cash demonetised will be replenished quite slowly – as the government wants to curb cash in the economy while giving a big push to the adoption of digital currency. Severe reduction in cash has led to a significant jump in consumers' digital and card transactions.

Paytm, a digital wallet provider with 150mn users currently, added 5mn users within two weeks of demonetisation and is currently doing 7mn transactions a day, which is more than those of debit/credit cards combined.

Canara Bank saw a ten-fold rise in daily transaction value on POS machines to Rs 66.4mn by December 9 from Rs 6.8mn on November 8. As more consumers migrate to digital mediums, businesses will have to adapt to the new order.

India has 712mn debit cards, over 150mn mobile wallets, and 26mn credit cards outstanding. While a significant number of debit cards are not active, demonetisation is likely to result in a huge number of card activations and a surge in mobile wallet transactions.

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Usage of cards (debit and credit) at points of sale as a percentage of total usage (ATM + POS) rose to 37% and 32% in volume and value terms, respectively (vs. the historical averages of 21% and 15% in the first 10 months of 2016). Increasing share of digital payments should help eCommerce companies drive down the share of cash on delivery (COD), which has been as high as 60-70%.

Mobile wallet usage rose in Nov-16, though its share is still very small. Volume share was ~14% (vs. 9% in Oct-16); value share was ~1% (from an average of 0.8% in the first 10 months of 2016). The sharp increase in volume share without commensurate rise in value share shows that average ticket size fell significantly – indicating greater usage of mobile wallets for small-ticket transactions.