After demonetisation: As cash comes in, digital deals show sharp dip

The decline in digital transactions in two successive months goes against the government’s stated objective of scrapping high-value currencies — that of moving towards a “less cash” economy.

THE SURGE in digital transactions during the demonetisation period is seeing a sharp reversal with data for February showing an accelerated pace of decline in electronic transactions. February 2017 saw a month-on-month decline of 21.3 per cent in the volume of electronic transactions, higher than the 9.1 per cent fall seen in January 2017 over December 2016.
According to data released by the Reserve Bank of India, the decline in value terms also accelerated in February over January 2017. The decline in electronic payments is being seen as reflective of the improved cash availability situation over the last couple of months since 500 and 1000-rupee notes were scrapped on November 8 last year.
The decline in digital transactions in two successive months goes against the government’s stated objective of scrapping high-value currencies — that of moving towards a “less cash” economy.
The biggest fall in usage was seen for cheque payments, use of debit and credit cards at point of sale terminals and mobile banking, that had emerged as preferred modes of payment following the lack of availability of cash during the demonetisation period.
The data shows that in volume terms, transactions through electronic payment modes fell 21.3 per cent from 870 million in January 2017 to 684 million in February.
In value terms, the decline was 16.7 per cent from electronic transactions valued at Rs 97,011 billion in January 2016 to Rs 80,765 billion in February 2017.
In fact, the value of digital transactions in February slipped below that in November when demonetisation was announced.
The decline in transactions in value terms in January 2017 over December 2016 stood at only 6.8 per cent.
Even as February had three transaction days less in comparison to January 2017, the pace of decline shows that consumers have begun to move back to their traditional payment method.
A senior government official told The Indian Express that demonetisation was a great opportunity to drive the digital transaction ecosystem. He, however, added that people would go back to old habits as and when the cash supply eases. “Currently, both cash and digital payments have convenience but cash comes without a cost, whereas digital has a cost attached to it. If that’s not dealt with, cash will become more convenient by default and people will go back to using it when supply in the economy is normalised. For this, some tweaking of policy is required so that digital payments become a habit,” the official said.
The decline in February was seen across various payment modes that people had adopted for their payments at the time of demonetisation.
While the volume of transactions through NEFT fell 20.4 per cent, that for cheque payment fell 22.9 per cent over the previous month. Volume of transactions through the use of debit and credit cards at PoS terminals fell sharply by 28.3 per cent while that through mobile banking also declined by 20.7 per cent.
In January, the decline in usage of cheque, NEFT and debit and credit cards at PoS was much lower. While the cheque usage fell by only 2.8 per cent over December 2016, that for NEFT and card usage at PoS fell by 1.5 and 7.8 per cent respectively.
Electronic payment methods had picked up significantly in November and December 2016 following the governments decision to demonetise the old Rs 500 and Rs 1,000 notes.
In December 2016, transactions through electronic payment methods had peaked and the volumes jumped to 957 million (684 million in February) following the cash crunch and the slew of incentives announced by the Centre to promote digital payments.

-Indian Express