While India may not be a cashless society just yet, it’s certainly headed in that direction.
Many experts believe that India will be the first country to successfully adopt a purely digital economy, and that’s due largely in part to the Indian banknote demonetization scheme that laid the groundwork for a society that won’t have to depend on paper currency.
The 2016 Banknote Demonetization
Before we discuss India’s future as a cashless economy, it’s important that you understand the early stages of this sudden shift. On November 8, 2016, Prime Minister announced the demonetization of ₹500 and ₹1,000 banknotes – 85 percent of the currency in circulation.
The goal was to flush out black and counterfeit money that was being used to fund terrorism, corruption, and other nefarious activities. However, The New York Times reported that this aspect of the demonetization was largely unsuccessful.
This drastic move was successful in another way, as it set the stage for a drastic shift in the individual lives of Indian citizens, as well as the country’s society and economy as a whole.
In short, it was the spark that ignited the cashless flame.
The Framework for a Cashless Society
As one might assume, demonetizing such a substantial portion of the currency forced fast changes, as consumers were no longer able to make essential purchases, and businesses no longer had a way to accept payments.
To give some context for India’s former dependence on paper currency, Uber’s purely digital, cashless policy was waived in India, where drivers were reported to regularly accept paper currency for rides. This was a first for the global ride sharing app.
As for the Indian people themselves, roughly half of the population didn’t even have a bank account at the time Prime Minister Modi announced the demonetization scheme on Nov. 8th, 2016.
Even the major banks weren’t notified of the demonetization, resulting in significantly longer wait times for citizens who were in the process of exchanging their old bills for new ones. During that state of limbo, the Indian people were forced to turn to digital means of storing and transferring value, such as e-wallets and debit cards.
The Forced Transition to Digital Currencies
While this sudden, drastic change may have seemed poorly executed, the reality is that it was a successful strategy, as it forced people to adopt modern money storage options.
Before 2009, notes Forbes, half of the Indian people didn’t have identification cards or even birth certificates, which made it impossible to open bank accounts, resulting in a cash-heavy economy.
In 2009, India launched Aadhaar, which is a biometric and demographic database that’s based on random 12-digit digital numbers that are used to identify citizens via retinal scans and fingerprints. As of August 2017, 99 percent of Indians over the age of 18 were enrolled in this identification system.
India Stack Takes Aadhaar to the Next Level
In 2016, India revolutionized Aadhaar with a new component called India Stack. These connected, secure systems allow Indian citizens to store and share personal data such as tax information, addresses, bank statements, and employment documents.
More relevant to the topic at hand, it allowed Indian citizens to open bank accounts through Aadhaar, using just a scan of the eye or fingertip.
As you can imagine, this was a tremendous leap for the economy and society as a whole, as people who previously were forced to rely solely on cash were now able to embrace banking, as well as digital money storage systems.
Since the initial launch of Aadhaar, over 270 million bank accounts have been opened in India, according to Forbes.
The Lasting Effects
At first, many Indian citizens were hesitant to embrace cashless payment options. Many were unfamiliar with how they worked and plenty who did understand them simply didn’t trust them.
However, those sour feelings faded with time as both consumers and merchants utilized digital payment options successfully.
After such a trial-by-fire transition, one might assume the worst, However, Indians are appreciating the convenience and security that e-wallets and debit cards offer, not to mention the savings on ATM fees.
The Future of India’s Economy
Given what we’ve seen happening in just one year, it’s not unreasonable to assume that the Indian economy will continue to follow the same path.
Government officials have been unabashedly taking drastic action to push India down the path to becoming a truly cashless society, and it’s highly unlikely that new paper currencies would be introduced anytime soon.
As more and more Indian citizens see their friends, family members, neighbors, and local stores using and accepting digital payment options, this push to a cashless economy will only escalate.
Additionally, the paperless revolution is fast occurring in various countries across the world, including Sweden, Singapore, the Netherlands, France, Canada, Belgium and the U.K, so India may wish to push forward to set an example for the rest of the global stage.
The Beginning of a Worldwide Shift
Slowly but surely, paper is dying. What’s exciting about India is just how rapidly the average Indian citizen went from relying solely on cash to diversifying their financial portfolios. In just one year, the Indian economy has been turned upside-down, and the results have been surprisingly positive.
Of course, the debit card isn’t a new concept, but as today’s innovative payment processing companies continue to look towards the future, we’re only going to continue to see an even stronger focus on digital means of storing, spending, and accepting money.
We’re already at a point in time when online businesses can accept payments from hundreds of countries, drastically reducing exchange fees and hassles while simultaneously opening up a vast global market.
As technology progresses and the average person warms up to purely digital currencies like Bitcoin, paper and metal as means of storing value are going to fade out like the final flickers of a well-spent candle.
How soon that happens is anyone’s guess, but now is the time for businesses, as well as investors and consumers, to take note and embrace the inevitable future of money.