Digital push is reining in cash

Indians seem to be increasingly buying into the idea of a ‘less-cash society’, by banking on mobile phone platforms and stepping up usage of cards and prepaid instruments to buy goods and services.

Reserve Bank of India data show that in 2016-17 (FY17), mobile banking transactions in volume terms rose two-and-half times to 97.68 crore from the previous year’s 38.65 crore.

In value terms, too, such transactions jumped to ₹13.10-lakh crore, over three times the FY16 figure of ₹4.01-lakh crore.

Mobile banking has got a fillip following the launch of Unified Payments Interface-enabled apps by banks from August 2016. UPI eliminates the need to add payee details such as bank name, branch, IFSC code and the full name of the recipient while making payments and requires only the creation of a Virtual Payment Address (VPA) to send and receive payments.

Due to demonetisation, whereby ₹500 and ₹1,000 bank notes were scrapped between November 9 and December 30, 2016, and the concomitant cash crunch in the economy, usage of cards, both debit and credit, at point-of-sale (PoS) terminals saw a robust jump.

Also, the number of PoS terminals installed at merchant outlets jumped 83 per cent in FY17 to over 25.28 lakh from nearly 13.83 lakh in FY16. The value of credit card transactions at PoS terminals rose 38 per cent y-o-y in FY17 to over ₹3.27 lakh crore (₹2.38 lakh crore). The value of debit card transactions at PoS more than doubled to nearly ₹3.3-lakh crore (₹1.59 lakh crore in FY16).

While the usage of debit cards at ATMs was up 6 per cent y-o-y at 856.30 crore, the transaction value was down 7 per cent to ₹23.60-lakh crore as ATMs in most parts of the country ran dry not only during the 52-day demonetisation period but well until March-end 2017.

The number of ATMs increased 12 per cent to 2,22,475 as at March-end 2017 from 1,99,100 as at March-end 2016.

In FY17, use of prepaid payment instruments (PPIs), such as mobile wallets and PPI cards, in volume terms jumped to 196.36 crore, up 2.62 times over the previous year. In value terms, transactions involving PPIs amounted to ₹83,801 crore, 1.71 times that of the previous year.

In FY17, transactions based on retail electronic clearing — Electronic Funds Transfer (EFT), National Electronic Funds Transfer (NEFT), Immediate Payment Service (IMPS), and National Automated Clearing House (NACH) — rose 32 per cent in volume terms and 44 per cent in value terms to 416.178 crore and ₹1,31,91,739 crore, respectively.

The traditional paper-based clearing, involving cheque truncation system and non-magnetic ink character recognition (non-MICR) clearing, was up 9 per cent y-o-y to 120.66 crore transactions in volume terms. However, in value terms, it was down 1.5 per cent to ₹80.95-lakh crore.

Clearly, the banks’ push to get customers to use alternative banking channels, such as mobile/internet banking, ATMs, and mobile wallets, seems to be bearing fruit.

This, in turn, is expected to result in cost savings as banks need not set up and run large branches.

Further, they can get employees to focus more on the core business of mobilising deposits, cross-selling and sourcing new loan proposals rather than getting bogged down with routine banking transactions.