There is no doubt that the global pandemic and the ensuing lockdown has crippled economies and changed the way people lead their lives. While the number of transactions have reduced drastically during this time, the way these transactions happen has also undergone a sea change. This leads to the question whether digital transactions are going to become the new normal post-COVID.
Many experts believe that while digital payments were already on a rise before the pandemic, the health crisis has given further push to people adopting digital tools to avoid handling of cash. It has also resulted in fewer possibilities to deal in cash. However, there is still a large segment, which relies on cash amid all this and many believe that cash would continue to remain the backbone of the Indian economy for a long time to come.
However, there is agreement on one thing: that once the recovery starts, there is going to be a new normal across the board and digital payments space is going to be no different. According to ‘India Digital Payments Report - Q1 2020’, issued by Worldline India, social distancing is going to influence, to some extent, how the landscape of digital payments will pan out particularly in the physical space, given it is a high contact area.
While the COVID-19 pandemic has impacted businesses across verticals and has upended daily life, the cash flow cannot be halted because of the virus outbreak or the subsequent lockdowns. This has resulted in increased adoption of digital payment solutions at an unimaginable pace throughout the country, says Rohit Kumar, CEO and CMD, Xpay.life.
“Digital payment platforms are flourishing with the rise in adoption. The RBI, National Payment Corporation of India (NPCI), along with government bodies, banks, financial institutions, and regulatory authorities, are already teaming up to quicken the process of digital payment adoption in the country. Though different economies are at different stages across the world, the COVID-19 has definitely cleared the road for digital payment methods in India,” he says.
The shift towards digital payments in India is particularly striking when the evolution of consumer behaviour can be seen among different segments, including older consumers who have traditionally preferred cash for transactions. According to a recent study by Capgemini, 80 per cent of consumers in India in the age group of 50 to 60 years will use digital payment methods the most, followed by the age group of 36-45 years at 83 per cent. XPay.Life, which simplifies payment for utility bills among tier-two, three, four and five consumers, has seen a surge of 500 per cent in recurring utility bill payment through its app, Kumar adds.
“The transition to a fully digital India cannot happen overnight, but we can certainly say that digital payment solutions are here to stay,” he says.
According to Nityanand Sharma, CEO and Co-founder, Simpl Technologies, COVID-19 has forced people change the way they used to transact and pay for their day to day essentials. Many first-time users have started using digital payments during this lockdown as the entire paradigm has shifted from offline to online.
“We would see a surge in the overall adoption of digital modes of payment across industries. Users are ordering their essentials from hyperlocal merchants like Dunzo, Bigbasket and this is generating a major dependence on digital payments as users are now making transactions through their cards, UPI apps, and net banking instead of relying on cash transactions. Due to the current situation, businesses and merchants are trying digital payment platforms like eWallets, UPI-based apps and net banking. This is leading to a sharp jump in the number of digital payment users,” he explains.
Sharma adds that the depth and extent of the impact of COVID-19 crisis on the entire digital payments industry are difficult to gauge right now but in the long term, it is likely to accelerate the adoption of digital payments across the country.
“This pandemic has changed the world fundamentally, and it will take a couple of months to get back to a normal life. Once the lockdown is over, there would still be a risk for the second wave of coronavirus and this fear will drive people to opt online commerce rather than offline. Most of the transactions in India used to happen via cash but this trend had changed post demonetisation as digital transactions in India registered 19.5 per cent in value in 2018-19 as per the RBI report. Apart from being contactless which is crucial in a time like this, digital payments are also safe and secure with a better user experience,” he explains.
Many believe that demonetisation marked the beginning of a new era for the digital payments industry in India with a sharp uptick in the adoption of e-banking, mobile banking, and most importantly UPI-based payment apps. While the current situation is very different, the pandemic will certainly serve as a growth catalyst for digital payment platforms, feels Varun Sridhar, Lead, Realme PaySa.
“Fundamentally, many people have lived life for twi odd months without going to an ATM or meeting someone in person. Today, person to person payments have hit a new normal with UPI payments. When lockdown ends, even shopping with social distancing using QR codes will be the new normal. The new normal in urban India will be on an average one ATM withdrawal per person per month, thinner wallets with Rs 2000 note kept as backup and around 20 mobile payments per month per person, 50 per cent of them using a QR code,” he says.
Sridhar adds that while studies are yet to establish the fact that coronavirus can be transmitted via paper currency, the general consensus among experts is that avoiding cash and consequently contact is a good idea right now. “Money changes hands very frequently. The fear of catching coronavirus from handling cash is undoubtedly leading to more number of digital transactions in India and worldwide.”
Bala Parthasarathy, Co-founder and CEO, MoneyTap, agrees and adds that as we navigate through the post-pandemic world of lockdowns, digital transactions have once again taken centre stage.
“I think this pandemic will bring an overall shift in our behaviour. We have already become more conscious about hygiene and physical distancing. Avoiding touching dirty surfaces and minimising physical contacts are the new normal. And when such a mass behaviour shift happens, old methods of day-to-day transactions can’t keep up. Once the economy reopens, there will be a further push for contactless payments instead of cash exchanging hands, due to possible concerns about the virus. Digital payments will continue to grow as the economy rebounds,” he explains.
Apart from the virus scare, cash transactions have also become negligible because nearly all financial transactions have come to a halt during the lockdown. Most of us are inside our homes, and digital payment is the only convenient option that we have.
“This is a positive sign for digital adoption, as we are also getting used to using our phones to pay for everything. I’m sure we’ll continue using digital methods even after the lockdown,” Parthasarathy says.
However, despite the rise in digital transactions during the demonetisation, we saw cash transactions again gaining the lost ground during the following years. According to Amit Nigam, Executive Director and COO, Bankit, cash always comes out as king. With migrants now being able to go back to their hometowns, the need for cash has seen a growth spurt, because once back home, they would need cash for daily purchases, he feels.
“India is a very diverse country in terms of demography and geography wherein everyone prefers cash. While a certain portion of the population has adopted digital payment services, there are many who still prefer and are comfortable with cash only. Still a larger population is not self-sufficient to use the digital payment methods. Even today, in the hinterlands of the country, there are towns and villages where banking facilities are limited. That is why cash out services in the rural and semi urban areas have seen a spike in this period and which will continue to remain, considering cash being the backbone of our monetary system,” Nigam explains.
He adds that even though digital payments are gaining momentum, cash business is also growing because most of the people in the country still rely on cash and love the touch and feel of money as a note.
“Hence, we have not seen any decline in the cash transactions. However, in the first phase of the pandemic, people were apprehensive about using cash to avoid the spread of the virus. But then the need to transact took over and cash came back to becoming the king. In this period, even vendors have been persistent about using cash as well, because the same has to be used across the value chain – transportation, wholesalers, vegetable farmers etc,” he explains adding that his company has seen 10x hike in cash-out business through Aadhaar Enabled Payment System (AePS) and MiniATMs since April 2020.
But according to most, the ever-evolving technology will make the future entirely digital and while cash transactions might still be part of the economy, digital payments will dominate the future.