Cash continues to be king in India and still reigns supreme for payments across the country with digital payments having failed to sustain their growth rate after demonetisation. A USAID-Intellecap study has found that the level of cash in circulation is back to its pre-demonetisation levels.

The situation is more intense in rural India, where a preference for cash-only transactions across the rural value chains has been noticed, largely due to the inter-connected nature of the rural economy

“Afer demonetisation in November 2016, the shift of urban consumers and merchants to digital payments was not instant or even streamlined,” said Himanshu Bansal, Project Lead at Intellecap, part of the Aavishkaar-Intellecap Group.

The report is commissioned by USAID and enabled by Intellecap. People battled several fears, he continued, of losing cash to incorrect transactions, and not having enough merchants with the facility to accept digital money. This process was more tedious in rural India, and especially with rural women “who have not been exposed to the level of technology and education as their urban counterparts”.

“The challenge in rural India was significantly accentuated. It was a technological challenge,” Bansal told BusinessLine . “Even as customers in urban India were struggling for cash, the situation was piquant in rural India, where even the likes of Paytm did not have anything during demonetisation. There were no clear merchant distribution networks.”

People in rural India had to visit their bank branches, 15-20 km away, and spend the entire day there to get cash, he said.

Two months later, however, as cash started becoming available, people happily went back to cash transactions.

He went on to add the first signs of resurgence of cash were seen as early as January and February 2017, two months after demonetisation, as cash availability improved across banks.

In February 2017, the volume of transactions using digital channels had significantly decreased compared to December 2016.

The USAID-Intellecap study, shared exclusively with BusinessLine , corroborates this, showing the total volume of digital transactions had fallen by 20 per cent after the initial spike between December 2016 and February 2017.

Rural India

Asked if the entire exercise of Digital India had failed in rural India, Bansal said: “The entire infrastructure of digitisation in rural India is coming together now, with the advent of various digital payment banks such as Airtel and Paytm, who have a huge focus on acquiring rural customers. There is a huge push now to drive that.”

However, he added: “UPI is still a little inconvenient because of the phone factor. Most of the rural customers have feature phones or basic phones, and the only way you can transact is through USSD (Unstructured Supplementary Service Data) platforms, which have not worked in India.

“If it had worked here, then we could have had the same level of impact mPesa had in Kenya. Better USSD penetration would have allowed rural customers to transact freely.”

USSD is a payment mechanism that allows basic feature phones to be used as a platform for money transactions.

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