Wednesday, November 30, 2016

Demonetisation, Coping From Cash to Cashless

Ever since demonetisation announcement, questions have been raised if India is ready to go cashless. It has been asked, how would Indian poor who are not familiar with banking system cope? Forget about use of credit and debit cards for transaction, hardly 300 million Indians use smart phone. How will another 900 million Indians access their banking needs?

I was listening to an interview of Mr. Nandan Nilekani , father of Adhaar card, by Ms. Barkha Dutt of NDTV. Similar interviews have been given by chief of NITI Ayog Mr. Amitabh Kant, and CEO of NPCI Mr. A P Hota to other channels. 

A variety of options are available for doing cashless transactions for all sections of society. 

Link adhaar card and phone number to bank account. There are 35.7 crore adhaar linked bank accounts in India. Nearly 108 crore people have adhaar cards in India. Any or all people can link their phone number and adhaar card number to their bank account. At present there are 

Use cards for transaction. It is believed there are 700 million cards including credit, debit and prepaid cards in India. 


  • Debit card money can be deducted from bank account. User has to use a four digit pin to activate transaction. 



  • Credit card pays money and bills customer at the end of the month. One can pay credit card bill using a cheque or net banking.

Use phone for transaction. Customers who do not have smart phone, can use their regular phone for transaction. Customer has to press *99#. Using this number, one can access their banks provided their mobile and adhaar card number is linked to bank account. Using this facility one can deposit and withdraw money. Though *99# can be used from any phone, the system is meant for people who do not have access to smart phone. The process is cumbersome. It needs getting used to the system and its processes. Nearly, 300 million can avail this facility. It is important to be ready with the following information, before one starts transaction:


  • register for IMPS in debiting (paying) bank;
  • register for mobile banking in debiting (paying) bank. Obtain mPin and MMID from bank. 
  • Crediting account should also be registered for mobile banking. The crediting account should have mPIN and MMID. 
  • I think crediting account should be registered in the IMPs of debiting account. 
  • It will be important to have MMID, mPIN, and last four digits of account number handy.
  • Instead of MMID, one can have option to use IFSC code. If using IFSC code, 16 digit account number must be handy. mPIN and MMID must also be kept handy for ready reference.

Use smart phone for transaction. Customer can download a variety of apps from google play store. Some created by NPCI like UPI, backed by many public and private sector banks. Customer has to link his debit or credit or net banking to the UPI app. Many banks have their own app, like SBI Buddy, HDFCZAPP etc. 

Customers can also use private operators like PayTm, Mobikwik, Chillar, Citrus etc. Phone companies have also entered e-wallet business in a big way. Airtel, Vodafone, Reliance all have e-wallet. Customer has to download the app from google play store. I found Paytm wallet to be  very user friendly. One can set up Paytm account in the following way:

  • Download the app from google play store. 
  • Create an account with mobile number and/or e-mail. Set a password. 
  • Link credit card, debit card or net banking for transfer of money. In a given time, one may carry just enough money in Paytm wallet, like an ordinary wallet, and pay. 
  • One can also receive money from family and friends. 
  • When shopping, one can scan Paytm barcode or enter mobile number of shopper and pay. Money in Paytm wallet can be transferred to bank account.
  • Beyond a certain limit of transaction, I think a business account needs to be created.


In rural areas, as well as for customers who cannot sign their names, micro ATM machines can be used. Micro ATMs are Point of Sale (PoS) machines. In urban areas these machines can be used to swipe cards. In rural area using finger print or using retina scan, PoS machines can carry out transaction. Per se, PoS machines cannot issue money. Officer, or bank mitra, carrying PoS machine can issue cash. There are nearly 1.5 Million PoS machine in India. This number is likely to double to 3 million in a few months. Micro ATM can be used for cashless transaction using Adhaar account. 

As it appears, infrastructure exists for transition from cash to cashless. All we need is changing the mindset. In India we are used to cash transaction. We feel comfortable if we have cash in our wallets. Changing from cash to electronic money will need change of mindset. It may take some time to getting used to. Specially for older generation. Younger generation, than constitutes the bulk of the population, may adapt to transition faster and better. Let us see how older generation that is controlling power reacts. 



Post a Comment