In November last year, India demonetized around 86% of the total value of the currency in circulation overnight by abolishing the largest denomination bank notes of Rs. 500 and Rs. 1000 bringing the country’s economy to a grinding halt. In a country that is heavily reliant on cash, this demonetization drive inflicted by the government has received varying levels of support from the society. While the common man remains the worst hit, having to deal with numerous hardships, the “FinTech” firms on the contrary have gained an unprecedented advantage. Indians who are otherwise averse to use any other means of transaction apart from cash are now forced to adopt a cashless economy by using digital payment options like e-wallets, online banking, debit and credit cards, etc.
In a country where there are fewer than 25 million credit cards for a population of over a billion, will the FinTech industry find a strong foothold? While I still have my doubts and believe it’s a far fetched dream to attract Indian consumers to adopt a cashless economy, numbers published in a recent article by Bloomberg (1) left me baffled. Amidst the demonetization shakeup with people being compelled to switch to a non-cash mode, Indian FinTech companies like Paytm have seen manifold growth in transactions and their customer base:
A 700% increase in their overall traffic, 1,000% growth in the amount of money added to the Paytm wallet, User base of around 150 million and over 5 million new users added since demonetization and around 7 million transactions worth Rs. 120 crores a day.
In India the “FinTech” software market is now forecasted to touch $2.4 billion by 2020 according to NASSCOM. While these numbers seem promising and India could end up being a rare bright spot for financial technology investors, I believe they still have a long bumpy road ahead of them. Listed below are a few roadblocks that I believe will continue to haunt the growth of FinTech in India:
- One of the major hurdles in my opinion is the current digital infrastructure in India.The lack of smartphones and internet connectivity are the prime reasons preventing India from going cashless.
- India is home to around 21% of the total unbanked population in the world where around millions still do not have access to formal banking services.
- Shops in rural towns that account for the vast majority of the country do not have a point-of-sale terminal that accepts digital payments.
Thus, until the “Cash is king” mentality still remains prevalent in India, it will take years if not decades to part ways with paper bills posing a serious threat to the growth of FinTech in India.
Reference (1): https://www.bloomberg.com/news/articles/2016-11-23/cash-ban-the-best-thing-to-happen-to-indian-digital-payments