Opinion

Understanding demonetisation: Why there’s a war on cash (and you are in the middle of it)

We can’t understand demonetisation and its aftermath if we don’t locate it within the global offensive against cash.

This is the first part of a three-part essay

Part II: Understanding demonetisation: Who is behind the war on cash (and why)

Part III: Understanding demonetisation: The problem with the war on cash

There is a global war on cash.

What we have seen in India in the last couple of months is part of that war. This is a difficult point for many opponents of the demonetisation exercise to accept because it interferes with the narrative that demonetisation is a story of political malice marrying incompetence. Suggesting that there were other motives too, whether good or bad, is seen as diluting the charge of incompetence. But we have to take facts as they come. If we do not do that, we will not be able to grapple with the real issues or understand what is going on.

The timing and reasoning for demonetisation may have been shaped by political opportunity and the schedule of the Assembly elections, but the move towards cashless economy was happening anyway. And demonetisation did give it a big push. At a very high human cost, of course. (Please click here for an explanation of how different threads/initiatives came together to cause an explosion on November 8.)

Who is waging the war?

But who is waging the war, and why? And thereby hangs a long tale. For ease of articulation, first the summary, and then the substantiation.

The war on cash is being waged by four major groups. One, existing financial services providers such as banks and credit card companies. Two, technology companies, including start-ups, with financial services ambitions (known as Fintechs in current terminology). Three, governments. And four, Central banks. It is difficult to imagine a more powerful combination of forces.

It is not that they have the same objectives. In fact, they have different objectives that sometimes conflict. But their interests are complementary when it comes to driving cash out of existence. For example, new start-ups like PayTM may take away business from existing financial service companies and ruin some of their business models, but for both groups, physical currency is either a mortal enemy or is of little use. There is little profit to be made from it and, for banks, it costs money to count, manage, store and move cash. But the moment currency turns into digital bits, two opportunities present themselves – one, to charge tiny little fees on every single transaction and two, to create a data trail of income and expenditure of customers that would come in handy to sustain new services and business models. So it makes sense for banks and fintechs to join hands to chase cash away.

India is right in the middle of this battleground, for two main reasons. One, India is seen as having the basic infrastructure in place – in terms of bank accounts and mobile penetration – to be able to take the jump to a cashless economy. Two, it has also been identified as a country with very large potential gains from the war.

But as in all wars, the question arises: how will the booty from this war be distributed? The summary answer is that while the gains for the initiators of the war on cash are tangible and immediate (think of the video of the PayTM chief executive officer’s celebratory dancing), for others caught in it, the gains are amorphous. So how do we weigh the overall costs and benefits, and equally importantly, how do we know how the pain and the gain are going to be distributed?

The best way to understand the war and to find answers to the questions raised above is to see how the idea of a cashless economy developed. Such a chronology will allow us to grasp how the war was conceived and who joined the battle when and why.

We know that plastic has been replacing cash worldwide in a slow and steady manner for decades, causing many to predict the death of cash prematurely. Cash today forms only 22% to 68% of transactions by volume in advanced economies. Norway, Australia and Denmark lead the digital pack while Japan, Germany and South Korea are among those who still prefer cash to cashless, with the United States falling somewhere in between, with a figure of 49%. But the theoretical scaffolding and reasoning for eliminating cash altogether began being put together only after the financial crisis of 2008.

The Great Recession

As we know, the Great Recession that began in 2008 pushed advanced economies into a long-term situation of low growth, low investment and low inflation, and central banks in these countries began to cut interest rates down to zero to stimulate investment and spending. But they found to their horror that zero or near-zero interest rates were not enough to get their economies humming again. In fact, some countries went even marginally lower than Zero, with Denmark being the first in 2012, followed by several of Europe’s central banks in 2014 and Japan in 2016.

Interest rates are the single most powerful tool that Central banks have, to control inflation or stagnation. If the economy is heating up and inflation is going beyond the targeted rate, central banks raise interest rates thus cooling down investment and consumer spending. People save more and spend less, bringing down inflation and along with it, growth. But if the economy is stagnant and inflation is lower than targeted, with not enough investment or consumer demand, central banks reduce interest rates to stimulate demand. Economic theory suggests that pushing interest rates significantly below zero might have been necessary to pull many advanced economies out of the funk they have been in since 2008.

A negative interest rate means that if you keep Rs 100 with your bank for a year, instead of getting back, say Rs 105 including a 5% interest, you may get back only Rs 99.90 – the rest being taken as, say, 0.1% negative interest rate. The expectation is that negative interest rates will force banks, businesses and individuals to lend, invest or spend their money rather than keep it idle, because there’s a cost to keeping it idle.

The lower a negative interest rate is, the higher the stimulus to spending and growth, just as the higher a positive interest rate is, the greater the restraint on spending. Now this is great in theory, but there is a practical problem. Central banks can take interest rate as high as they want without limit, but they cannot take it into seriously negative territory for a simple reason: if it goes there, everyone would just take their cash out of the banks and keep it in safe deposit boxes. No spending happens, and the central bank objectives are not met. In other words, economists argue that there is an asymmetry in the way central banks can use interest rates. They have immense power to cool down an overheating economy, but only limited power to stimulate a stagnant economy by bringing down interest rates sufficiently.

The technical term economists use to describe this situation is Effective Lower Bound, or ELB – the negative interest rate below which people will just withdraw their money from banks. Since there is a convenience to keeping money in the bank, the ELB is usually not exactly zero, but a little below zero – say, - 0.5% or -1%. People don’t mind keeping their money in the bank if the negative interest rate is a minor annoyance, because there is a convenience to operating with a bank account and say, a debit card.

After the Great Recession, this is the situation that central banks found themselves in: operating close to ELB. And it is in this situation that some economists started pushing a new idea that sounded horrendous to many: eliminating cash altogether. If there is no cash, people cannot take their money out of banks, and central banks can take interest rates as much below zero as needed. In other words, eliminating cash will improve the ability of central banks to fight stagnation and improve growth. Of course, this is like a forced appropriation of people’s savings and many would find it outrageous. But the economists would counter: so what’s new? People today hold cash even when there is inflation, knowing that the value of their holding is decreasing every day, and this is merely the opposite situation: there is no inflation or very low inflation, and instead there is a negative interest rate on your savings that you can’t escape.

This is the first part of a three-part essay

Part II: Understanding demonetisation: Who is behind the war on cash (and why)

Part III: Understanding demonetisation: The problem with the war on cash

Tony Joseph is a former Editor of BusinessWorld and can be reached at tjoseph0010@twitter.com.

We welcome your comments at letters@scroll.in.
Sponsored Content BY 

Putting the patient first - insights for hospitals to meet customer service expectations

These emerging solutions are a fine balance between technology and the human touch.

As customers become more vocal and assertive of their needs, their expectations are changing across industries. Consequently, customer service has gone from being a hygiene factor to actively influencing the customer’s choice of product or service. This trend is also being seen in the healthcare segment. Today good healthcare service is no longer defined by just qualified doctors and the quality of medical treatment offered. The overall ambience, convenience, hospitality and the warmth and friendliness of staff is becoming a crucial way for hospitals to differentiate themselves.

A study by the Deloitte Centre for Health Solutions in fact indicates that good patient experience is also excellent from a profitability point of view. The study, conducted in the US, analyzed the impact of hospital ratings by patients on overall margins and return on assets. It revealed that hospitals with high patient-reported experience scores have higher profitability. For instance, hospitals with ‘excellent’ consumer assessment scores between 2008 and 2014 had a net margin of 4.7 percent, on average, as compared to just 1.8 percent for hospitals with ‘low’ scores.

This clearly indicates that good customer service in hospitals boosts loyalty and goodwill as well as financial performance. Many healthcare service providers are thus putting their efforts behind: understanding constantly evolving customer expectations, solving long-standing problems in hospital management (such as long check-out times) and proactively offering a better experience by leveraging technology and human interface.

The evolving patient

Healthcare service customers, who comprise both the patient and his or her family and friends, are more exposed today to high standards of service across industries. As a result, hospitals are putting patient care right on top of their priorities. An example of this in action can be seen in the Sir Ganga Ram Hospital. In July 2015, the hospital launched a ‘Smart OPD’ system — an integrated mobile health system under which the entire medical ecosystem of the hospital was brought together on a digital app. Patients could use the app to book/reschedule doctor’s appointments and doctors could use it to access a patient’s medical history, write prescriptions and schedule appointments. To further aid the process, IT assistants were provided to help those uncomfortable with technology.

The need for such initiatives and the evolving nature of patient care were among the central themes of the recently concluded Abbott Hospital Leadership Summit. The speakers included pundits from marketing and customer relations along with leaders in the healthcare space.

Among them was the illustrious speaker Larry Hochman, a globally recognised name in customer service. According to Mr. Hochman, who has worked with British Airways and Air Miles, patients are rapidly evolving from passive recipients of treatment to active consumers who are evaluating their overall experience with a hospital on social media and creating a ‘word-of-mouth’ economy. He talks about this in the video below.

Play

As the video says, with social media and other public platforms being available today to share experiences, hospitals need to ensure that every customer walks away with a good experience.

The promise gap

In his address, Mr. Hochman also spoke at length about the ‘promise gap’ — the difference between what a company promises to deliver and what it actually delivers. In the video given below, he explains the concept in detail. As the gap grows wider, the potential for customer dissatisfaction increases.

Play

So how do hospitals differentiate themselves with this evolved set of customers? How do they ensure that the promise gap remains small? “You can create a unique value only through relationships, because that is something that is not manufactured. It is about people, it’s a human thing,” says Mr. Hochman in the video below.

Play

As Mr. Hochman and others in the discussion panel point out, the key to delivering a good customer experience is to instil a culture of empathy and hospitality across the organisation. Whether it is small things like smiling at patients, educating them at every step about their illness or listening to them to understand their fears, every action needs to be geared towards making the customer feel that they made the correct decision by getting treated at that hospital. This is also why, Dr. Nandkumar Jairam, Chairman and Group Medical Director, Columbia Asia, talked about the need for hospitals to train and hire people with soft skills and qualities such as empathy and the ability to listen.

Striking the balance

Bridging the promise gap also involves a balance between technology and the human touch. Dr. Robert Pearl, Executive Director and CEO of The Permanente Medical Group, who also spoke at the event, wrote about the example of Dr. Devi Shetty’s Narayana Health Hospitals. He writes that their team of surgeons typically performs about 900 procedures a month which is equivalent to what most U.S. university hospitals do in a year. The hospitals employ cutting edge technology and other simple innovations to improve efficiency and patient care.

The insights gained from Narayana’s model show that while technology increases efficiency of processes, what really makes a difference to customers are the human touch-points. As Mr. Hochman says, “Human touch points matter more because there are less and less of them today and are therefore crucial to the whole customer experience.”

Play

By putting customers at the core of their thinking, many hospitals have been able to apply innovative solutions to solve age old problems. For example, Max Healthcare, introduced paramedics on motorcycles to circumvent heavy traffic and respond faster to critical emergencies. While ambulances reach 30 minutes after a call, the motorcycles reach in just 17 minutes. In the first three months, two lives were saved because of this customer-centric innovation.

Hospitals are also looking at data and consumer research to identify consumer pain points. Rajit Mehta, the MD and CEO of Max Healthcare Institute, who was a panelist at the summit, spoke of the importance of data to understand patient needs. His organisation used consumer research to identify three critical areas that needed work - discharge and admission processes for IPD patients and wait-time for OPD patients. To improve wait-time, they incentivised people to book appointments online. They also installed digital kiosks where customers could punch in their details to get an appointment quickly.

These were just some of the insights on healthcare management gleaned from the Hospital Leadership Summit hosted by Abbott. In over 150 countries, Abbott is working with hospitals and healthcare professionals to improve the quality of health services.

To read more content on best practices for hospital leaders, visit Abbott’s Bringing Health to Life portal here.

This article was produced on behalf of Abbott by the Scroll.in marketing team and not by the Scroll.in editorial staff.