Demonetization spotlights digital economy growing pains

By Lionel Alva

Two weeks post demonetization, public patience is reaching frustration threshold. So dire is the situation that the Supreme Court cautioned the central government that if there is no relief soon then there could be civil discord leading to riots.

For organizations, it has led to uncertain business climate as consumers increasingly make efforts to curb their spends. Retail stores, theatres and other commercial organizations where cash transactions comprise large part of the business have seen adverse impact. Conversely, it has to a degree brought to the surface, the problems of a flawed cash-based economic system.

Sharing his thoughts on the subject, Kartik Shahani, MD-India / SAARC, RSA says, “It has been a great learning experience for everyone. While no one has been able to fathom the ripple effect of the event some very interesting situations have arisen. There are viewpoints, perspectives and speculations, but they all have one common denominator, which is ‘uncertainty’. Evaluating and managing risks in relation to business objectives has become imperious. The sudden requirements for cash and cash-related transactions have opened up new avenues for Digital Wallets and Plastic Money. The financial inclusion of rural India is suddenly a reality, which will in the long run benefit the nation. The flow of funds into the ‘Jan Dhan’ scheme and other program to propel India into the digital era has got impetus.”

According to Shahani, the demonetization has brought to the fore issues such as, information security and compliance. For B2C companies, protection of financial assets has become high on the priority list of many financial institutions. With consumers veering towards going cashless, the surge in huge transaction data will probably provide the big data analytics that will help the Government and policy makers to take informed decisions. It’s a time where the systems are going through rigorous stress testing, this will result in learnings for future designs of security infrastructure as well.

Paytm gets on superfast growth clip

Paytm has emerged as the fastest growing QR Code-based POS network in the country. Backed by a large payment ecosystem of customers and merchants, the company registered a 700% increase in overall traffic and 1000% growth in the amount of money added to the Paytm account over the last couple of days. During this period, the transaction value continued to be 200% of the average ticket size while the number of app downloads went up 300%. The number of transactions per user also went up from 3 transactions to over 18 transactions in a week. This points to a strong set of repeat customers Paytm has now acquired.

Being the segment leader in mobile payments and commerce, Paytm has partnerships with hundreds of thousands of outlets across various categories. Some of its major offline partners include Future Group, More, Big Bazaar, Spencers, eZone, Croma, Fortis Health World, Indian Oil, Hindustan Petroleum, Mother Dairy, WHSmith, Haldiram’s, Vaango, KFC, Pizza Hut, Barista, Costa Coffee and many more. With its assertive focus on mobile payments, the company is inching closer to its aim of making cashless transactions a way of life across India.

The Good Part

In many ways, the rot has always existed beneath the surface and black money has acted as a leech, taking away from public welfare, where funds were siphoned-off into the pockets of a few creating a system of inequitable distribution of wealth. According to the central government, this is a bitter move that is good for the country in the long term.

Jatin Agarwal, co-founder, Servd, says, “ This is a very bold move and while it may inconvenience many in the short term, we have to keep in mind, that the currency ban is a necessary one. It helps circumvent the problem of counterfeit currency and consolidates our economy by putting a brake on the parallel economy that exists. It also heralds the age of the digital economy as e-commerce firms are thriving.”

Others from the industry too echo similar views. Especially for firms engaged in IT and ancillary sectors this presents a tremendous opportunity. Increasingly, consumers are opting for online payments to meet their needs providing a boost to e-commerce companies.

A few companies like Razorpay, an online payments platform, unveiled their latest and innovative product, eCOD, to help e-commerce companies accept payments at the time of delivery using payment methods other than cash. The product is aimed to replace ‘Cash on Delivery’ and provide relief to online merchants impacted by the phasing out of Rs 500 and Rs 1,000 currency notes.

A Snapdeal spokesperson says, “We support the demonetization effort by the government, and are committed to making this transition as friction-less and convenient as possible for our consumers. We worked closely with our users throughout the last week to ensure there was no lapse in their experience, and they have responded by swiftly adopting alternative payment modes, especially the ‘Wallet on Delivery’ option. We will continue to monitor the situation closely, and do as required to ensure it is business as usual on our platform.”

Meanwhile, the government on its part appealed to the public to support the move and stated that there was no question of a roll back happening. With many consumers opting for cashless options, the importance of the United Payment Interface (UPI) and ecosystems, such as Blockchain have come into focus.

Trishneet Arora, Founder & CEO, TAC Security, says, “Going cashless is the future in a economy that is becoming digital. The demonetisation is a good move for the IT sector. There is also a need for better security systems so that people can trust digital mediums of transactions better. A pertinent need for greater awareness exists as credit card frauds cost banks and credit card companies over $8 billion each year. Apart from the Apple Pay fraud, such large-scale ‘mobile wallet frauds’ have not been witnessed so far, if we discount customer carelessness from the picture. However, there is serious lack of awareness and understanding of this risk. Several business personalities are not taking cyber threats seriously.”

The emphasis on a digital economy, are but two sides of the coin. Growing pains as they say.

Also Read: Cashless Sweden, the country to follow