On November 9, Finance Minister Arun Jaitley said that the National Democratic Alliance government’s sudden decision to withdraw Rs 500 and Rs 1,000 notes from circulation was aimed at making India a “cashless economy”.

In a country where over 97% of all retail transactions are conducted in cash, the government clearly wants Indians to switch to digital payments.

Last Friday, a three-member panel headed by the Niti Aayog’s chief executive officer Amitabh Kant was established to find out the minimum time and cost it will take to “make India a cashless economy on a war footing”.

The government seems hopeful that demonetisation will prompt Indians to switch to using debit and credit cards, micro-ATMs, pre-paid mobile wallets, payment banks and the Unified Payment Interface. Many of these instruments are operated through smart phones.

Electronic financial payment companies are vigorously advertising their services, going all out to woo new customers. But are Indians ready to stop using cash and start dealing in non-cash payment instruments?

‘Banking means extra costs’

Close to 6 on a mid-November evening in Delhi, the sky was already dark. The workday was about to end soon, but Mohammad Manzoor, at Kale Khan in South Delhi, had barely ferried any passengers for his cycle rickshaw.

Manzoor hails from Katihar in Bihar and comes to Delhi for a few months every year in search of work. On average days, he earned Rs 300 he said, but in the two weeks since the government’s currency withdrawal decision, this had shrunk to barely Rs 150 to Rs 200.

The migrant, who is in his 30s, has enrolled in Aadhaar, the biometrics-based unique identity number. He also owned a basic feature phone, but it had been stolen the previous day. Though he did not go to school and cannot read, he had devised his own method to use the phone.

“A friend who also rides a rickshaw helped me put a combination of alphabets and symbols against each of the five contacts saved in my phone address book,” he said. “I recognised the patterns and could easily make a call.”

Manzoor said that he thought that opening a bank account could increase his expenses, which he was not prepared for. The increasing economic stress since the demonetisation announcement had made him less willing to experiment with banking, since his costs have gone up even as his income has dropped.

“The owner of the hotel where I eat has recently raised the rate of rotis from Rs 3 to Rs 5, saying his cost of buying flour and rice have increased,” said Manzoor. “Going to a bank, or buying a new phone to replace the old one, where will the money for that come from? I am barely getting passengers and even the ones I get always want to pay Rs 10 less than what I ask.”

In cash we trust

A few kilometers away, in Bhogal market, also in South Delhi, Subhash Mandal, a vegetable vendor, waited for buyers to approach his cart.

Mandal’s first-ever bank account was the one he opened through the Pradhan Mantri Jan Dhan Yojana, a government scheme launched in 2014 that aims to link every household to a bank account.

But he has not used the account once, even to transfer money back to his family in Samastipur in Bihar. He has not used the debit card that came with the account to withdraw money either. He said that he doesn’t have enough money to put into the bank.

Mandal earns Rs 20,000 a month, nearly double of the amount earned by rickshawallahs like Manzoor.

“After paying Rs 7,000 rent, Rs 4,000 in expenses, I do not save enough to deposit money in the bank,” he said.

He sends money back home using another person’s bank account, paying a commission of Rs 100, or 1%, for a transfer of Rs 10,000.

Subhash Mandal is yet to deposit any money into his Jan Dhan bank account. He prefers to transfer money back to his home in Bihar using someone else's account for a small fee. (Photo credit: Anumeha Yadav).
Subhash Mandal is yet to deposit any money into his Jan Dhan bank account. He prefers to transfer money back to his home in Bihar using someone else's account for a small fee. (Photo credit: Anumeha Yadav).

“It is easier to send money through the shopkeepers since they already know the system,” said Mandal, who has studied till primary school.

After high-value currency notes were withdrawn overnight from November 8, Mandal said his sales were down by two-thirds as people were not buying vegetables.

A cautious transition

In neighbouring Jangpura, the owners of upmarket grocery shops that previously used to transact only in cash said that they had recently started taking payments via the digital payment instrument, PayTM, and had also ordered new point of sale, or PoS, machines from banks.

“Kotak Mahindra bank staff have offered to install a PoS machine to swipe cards by day-after-tomorrow,” said Avinash Bhardwaj, a shop owner in his 20s. “We will bear 1.25% cost per transaction but at least the bank is giving the machine free of cost.”

Said another shopkeer, who asked to remain unidentified: “Our sales are down from Rs 7,000 a day earlier to Rs 3,000 now, so I am trying out all options. PayTM staff approached us, and I downloaded the application on my phone on their suggestion.”

Those manning other retail outlets said that they had started using point of sale machines that they had bought earlier but had not used so far as they did not want to incur the 1% to 2% charge per transaction.

In the same neighbourhood, however, owners of smaller grocery stores said that they felt they had no option but to wait for things to normalise.

“At the most, I can do a mobile recharge on my feature phone for people who come to my shop for a mobile recharge,” said Narinder Sethi, in his late 50s, who has run a shop here for the last 12 years. “I have a bank account, but I have never withdrawn cash using an ATM card. In my family, only my son who is in college knows how to use a debit card.”

Aman Abbasi, a high-school dropout in his 20s, works at a photo studio and real estate shop in the area. Abbasi owns an expensive Xiaomi Redmi smartphone, which he said he used to access services such as WhatsApp and Facebook. However, he does not know how to make digital payments.

Aman Abbasi says someone stuck a PayTM sticker outside the shop where he works but he did not know how to use the app to make or receive payments.  (Photo credit: Anumeha Yadav).
Aman Abbasi says someone stuck a PayTM sticker outside the shop where he works but he did not know how to use the app to make or receive payments. (Photo credit: Anumeha Yadav).

‘Too old to learn new tricks’

Chani Luthra, the 66-year-old owner of a tailoring shop in which five workers are employed, owns a basic feature phone. He said that he felt helpless as his business has suffered from the impact of the government’s decision to withdraw over 86% of the currency in circulation overnight.

“Those who have made this decision must be very intelligent,” he said, sarcastically. “But I am either too dumb or too old to learn new payment options now.”

Luthra said that he had a joint savings account with his spouse but did not wish to use that account for commercial transactions. Nor did he want to open a new bank account.

Chani Luthra, owner of a tailoring shop, says he prefers to use a basic phone, and has not yet opened a bank account for commercial transactions.  (Photo credit: Anumeha Yadav).
Chani Luthra, owner of a tailoring shop, says he prefers to use a basic phone, and has not yet opened a bank account for commercial transactions. (Photo credit: Anumeha Yadav).

The tailors who work in Luthra’s shop, who are from Bareilly in Uttar Pradesh, receive their wages in cash. They said that they preferred to carry the money with them when they visited home instead of using their bank accounts to transfer the money to their families. “It is safer and easier to carry the cash,” said Bablu, a young tailor.

‘Why is onus on users?’

Financial inclusion experts say a combination of factors such as inadequate infrastructure like the low number of smart phones (220 million in a country of 1.2 billion, at last count) and point of sale devices, the absence of trust in banking, and the lack of a suitable interface for people with varying levels of financial literacy means that widespread acceptance of cashless payment instruments may take years.

“There are barriers of connectivity and infrastructure,” said Anupam Verghese, chief financial officer of Eko India Financial Services, a mobile-based banking company that provides no-frills withdrawal and remittance services to its 1.6 crore clients, including thousands of unorganised sector workers. “People do not see any reason to put their money in a bank account.”

Verghese said initially, about 10 years ago, the company had tried to help people to open bank accounts and carry out transactions.

“We tried to build awareness through street plays,” said Verghese. “But soon we found the costs are high but banks do not want to spend on this at all.”

He added: “For workers too, there is a cost to standing in queues in banks, and many of them find banks intimidating.”

Over the years, the company built a new model of business around the willingness of its clients to pay a 1%-2% transaction fee if someone else made the cash transfer for them.

Verghese said that Eko did transactions worth Rs 500 crore last month on this model.

Manoj Sharma, managing director (Asia) of Microsave, a financial inclusion consulting firm, said that low incomes, low smart phone penetration and low literacy levels were impediments to making a complete switch from cash to banking and digital payments.

“It takes a minimum of four to five transactions before someone gets familiar with using a system,” said Sharma. “Jan Dhan bank accounts are zero-balance accounts and several have not yet recorded any transactions yet.”

He added that over 19 crore RuPay debit cards were disbursed with the Jhan Dhan accounts but many people did not receive these cards or did not activate them, “or they had no points nearby where they could be used at all”.

Users cited various reasons and weighted them in a USAID survey on why they did not use their debit cards for payments.
Users cited various reasons and weighted them in a USAID survey on why they did not use their debit cards for payments.

Puneet Chopra, associate director with Microsave, said that with one billion mobile subscriptions in India, mobile phones offered an opportunity to conduct less costly transactions.

Earlier this year, Chopra led a study in North India to research how mobile phone users with low levels of literacy could make digital payments. He said that the study found that people with little schooling could make and receive phone calls and locate contacts in an address book.

“They are not able to make a payment by keying in numerals, say, for Rs 125,” said Chopra. “But when we used pictorial representations of currency notes of Rs 100, Rs 20 and so on on a device, they were more comfortable using these to calculate.”

Professor Kalpana Karunakaran, an expert on micro-finance, said the government ought to learn from the experience members of self-help groups have had with banking.

“Instead of putting the onus on workers and small enterprises to make a switch, the government should examine why credit to sectors such as self-help groups is either stagnant or in decline,” she said.

Karunakaran said over the years, women who were members of such self-help groups found banks to be hostile territory. “Banks are poorly staffed after massive retrenchment and the staff often act impatient with them,” she said. “The women were often treated as less valued customers because of their gender or caste.”

She added: “There are qualitative issues such as these which are hard to measure and will take a lot of effort to correct.”