Authored by AP Hota
The government of India and RBI have been promoting digital payments in a big way as this is critical to handle the increased volume of economic activities in our quest for a $ 5 trillion economy.
With the Acceptance Develop Fund created by RBI, this would get a further boost; but this does not mean that cash will lose its relevance overnight. I foresee the absolute volume of cash increasing over the next few years before plateauing, and then declining. However, the currency to GDP ratio would keep declining considering the growth in GDP.
Cash is still very important in the life of a common person. While technology players are eager to build digital-only systems with several value-added services, in my opinion, we should consider the relevance of cash to the vast section of our population, who are yet to have the access or have the confidence to use payment technology. The mushrooming growth of digital payment players in recent years is yet to provide the required degree of confidence that digital payments are safe. We have a vast section of people, who live with a very meagre income. They do not know whom to approach if anything goes wrong in digital payment transactions and how soon the disputed transaction would get resolved.
Fear of digital payments is genuine. Having a smartphone is not equivalent to being digitally savvy. After seeing thousands and thousands of these cash-strapped migrant workers walking long distances to reach their homes, one can imagine their economic condition.
Expecting them or their poor farmer cousins to carry out day-to-day transactions by debit cards or mobile app or by wallets would not be practical and should not be insisted upon. If they receive their credits into their accounts through DBT or other electronic mechanisms in a timely manner and they have the access to ATMs or micro-ATMs nearby, it should be good enough for the present.
Digital payment firms should not exaggerate claims of “making life easier” without corresponding investment in security and complaints management.
It is really amusing to notice claims of some blockchain enthusiasts that central bank digital currency (CBDC) will ensure financial inclusion. Let cash co-exist as long as it is convenient to the user. Once the safety aspects of digital payments are taken care of, people would migrate without doing any marketing. We need to always keep in mind that for a large section of our people, their experience of ‘divinity’ is when they receive a few currency notes for their hard work and they can utilise the same without worry.
Don’t go by the volume of ATM transactions during Covid times. The declining volume of cash withdrawal transactions from ATMs during past two months is not the real indicator of the requirement of cash in the economy. It is more a reflection of the level of economic activity than the preference for cash or digital payments.
As per NPCI statistics, the number of ATM transactions in April 2020 dropped to 25.8 crore from 45.6 crore in February 2020 (pre-Covid-19), registering a drop of over 40 percent. But a similar drop in transactions is visible in digital payments as well. This temporary drop in transactions should not make the ATM industry believe that there is going to be a permanent shift away from cash.
The ATM industry sitting back and withdrawing investments would not be proper at this stage – neither for their business not for the country. They should, on the contrary, take pride that during this Covid period, the business correspondents and citizen service centres had played a stellar role in disbursal of cash to about 20 crore beneficiaries through micro-ATMs and AePS infrastructure in just 2-3 days. Developed countries with much higher digital footprints took weeks to complete a similar task.
Only 2.5 lakh ATMs and 10 lakh micro-ATMs for such a large country as ours is not enough. I have often heard from professionals in the ATM industry as to how in an “ATM-nirbhar Bharat”, this inadequacy is being ignored. Even in developed markets, people find it easy to carry out some transactions by cash. Once the banks appreciate that digital payments cannot address payment system needs of all, they should sit together and finalize the interchange and pricing issues which have been dragging for last 4-5 years.
The players in the ATM industry would also have to collaborate and develop ATM models and solutions aptly suited for India. There is a need for additional 2.5 lakh ATMs and 30-40 lakh micro-ATMs in Tier-3-4-5 centres where cash is still the king. ATM players can even collaborate and create a New Umbrella Entity (NUE) with a vision to make ATMs and micro-ATMs accessible to all. Given our socio-economic conditions and the problem of the digital divide, I foresee an ATM-nirbhar Bharat in no less than 10 years!
A P Hota was former MD and CEO at NPCI. Views are personal
First Published: IST