NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, February 14, 2017

The call for digital cash, or going cashless, has never been as loud and clear as it has been in the past two months across India. One of the positive impacts of demonetisation has been the exploration of alternate methods of payment such as credit and debit cards, online money transfer and payments, use of e-wallets, digital transaction apps such as BHIM, etc. The various means of digital payments have made life a little easier.

However, each of these has one common challenge — low penetration. According to the Reserve Bank of India, a little over 2 per cent of Indians have a credit card and around 59 per cent have a debit card but even these are not accepted at all merchant establishments. In cities, the acceptance of cards is high but in rural India, it’s scarce and challenging.

Enhancing financial inclusion

On the banking side, over 47 crore citizens have an account of which 26 crore are Jan Dhan accounts. A large number of these bank are dormant for want of financial literacy. E-wallets need a smartphone to operate and these are not interoperable with other wallets.

These wallets work as islands; transactions from one wallet to another are not possible and users need to manage multiple digital wallets. It is also natural to weigh these options on the parameters of user trust and security.