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Currency invalidation: small digital payments companies have an advantage over banks

You knew the time for digital payments had arrived when a colleague walked up and said he didn't know how to pay the chai guy today. Like many others, his physical wallet had a few Rs 500 notes. Now defunct, and as many on Twitter said, "good only for bonfire".  

By Goutam Das        Last Updated: November 9, 2016  | 19:30 IST
Currency invalidation: small digital payments companies have an advantage over banks
Illustration: Raj Verma

You knew the time for digital payments had arrived when a colleague walked up and said he didn't know how to pay the chai guy today. Like many others, his physical wallet had a few Rs 500 notes. Now defunct, and as many on Twitter said, "good only for bonfire".    

The czars of digital start-ups knew it on Tuesday night itself; they trumpeted their digital wallets and predicted what all could flow through digital pipes in India, going ahead. By noon on Wednesday, their PR machinery was on overdrive.  

Paytm, India's largest mobile payments company reported 200 per cent rise in app downloads, 1,000 per cent increase in 'add money', 400 per cent jump in offline payment transactions, and a 200 per cent ballooning of transaction value.

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Rival MobiKwik sent out a press release saying, "Buoyant on the new industry dynamics, MobiKwik set to achieve 10bn GMV by 2017". The company said its wallet registered a 40 per cent growth in app downloads within 18 hours of Rs 500 and Rs 1,000 notes pullout and that "the company's growth projections have been revised to register five times more growth".

The pullout of the higher denomination currency is also good news for many other digital payments start-ups as well as e-commerce companies. They stand to save on expenses if the digital channel replaces cash-on-delivery as the preferred medium for payments. But the real impact of small transactions moving over to wallet companies could be on the banks. After yesterday's decision, it is clear banks have to do more to retain mindshare as well as the new diamond - data.

Needling the banks is a host of start-ups - digital payments companies is just one group. FinTech companies in India include financial product comparison and aggregation companies, remittances firms, those that provide small loans, and start-ups that use technology to judge creditworthiness of a consumer or an SME in less than a day. Both trust and transactions are moving to these start-ups and could soon reflect in a bank's visibility of customer data or their behaviour patterns. It would reduce a bank's ability to cross-sell or upsell other products. The result: over time, they could become reliant on these start-ups for such data.

There's a war on cash - the net cost of cash is 1.7 per cent of India's real GDP in 2014/15, according to a report by Visa - but banks have an immediate battle to fight too.

 

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