Has demonetization changed the way we shop?

FINTECH JOURNEY: Indian financial industry seems to have picked up revolutionary pace towards ultramodern financial technology. There are gazillions of FinTech startups that includes the likes of Paytm, Freecharge, Mobikwik, Lendingkart, MSwipe, RazorPay , CitrusPay and the list goes on.. The rise of these startups gave way to various cash not present (CNP) options such as mobile wallets and UPI as payment options. Now a payer with his bank account in any bank can transfer funds to receiver in same bank or any other bank using a UPI handle. Additionally, a mobile POS helps consumers to pay for an Amazon or a Big Basket delivery through a debit card at their doorstep. These startups are heavily funded by prominent venture capitalists which might indicate that a new way of dealing finance is imminent or physical money and cards are on the verge of antiquity.

Let us have a closer look at the most celebrated journey in Indian Fintech industry, PayTM. Vijay Shekhar Sharma, Founder of PayTM, was among first few to anticipate the changing financial ecosystem and proactively incept wallet. From his journey to start a closed loop payment system to a payments bank it is clear that the financial industry is up for a whirlpool ride with erupting technology as its ally. Just to highlight that PayTM was valued at $3 billion in 2016 resounding the assurance investers have in this industry in the future.

DEMONITIZATION HAPPENED: Does that mean older technologies are going to be obsolete? Or I will never need to withdraw cash? I don’t think so. There is enough evidence to show that cards/ATMs are here to stay. Demonetization took everyone by surprise even the cash itself was missing for a while. However, Guess what! Cash is back. Total value of online transactions plummeted after reaching a high shortly after demonetization. Although, number of people using online platforms such as wallets and UPI have increased but it is not a complete measure to predict any change in consumer behavior. What actually reflects the change in consumer behavior is ticket size of these transactions. Today no one shops for an item worth 10,000 or above using wallets or UPI handle but cash, card or cheque. These traditional ways of payments are still the preferred modes of payment.

WHAT COULD BE THE REASON ?: Many would argue that low internet penetration and illiteracy are reasons for lack of widespread adoption of these payment technologies. Last night I met a friend whom I asked what all he pays with his phone wallet. He scratched his head for a bit but replied Uber and movie tickets only. The ticket size would be around 2000-3000 a month. Just to add that he does have a 4G internet connection and a degree in Civil engineering. For a person with average monthly spending of 40-45k, wallets form a very small part.

The reason could be something subtler. It takes time for a new technology to be accepted by consumers. This lag in adoption was also clearly visible when internet was introduced. It took several years for dotcom boom to take place. Every technology has its early days of skeptism leading to a tussle between consumer behavior and changing technology. I believe that FinTech is going thorough this very phase of product life cycle. Many consumer segments are comfortable the way they shop or pay. Cash, Cheque or Card are convenient ways to these customers as compared to shifting to emerging technologies for now.  

CONSUMER BEHAVIOR SHIFT: Shift in consumer behavior is not the sole problem. Not only new technology has emerged but they are introduced every now and then. Amidst Jan Dhan Yojna, adhaar linkage with bank accounts and wallets there was a UPI mode of payment. A few noticed IMPS as payment method and even a fewer used it. There are a lot of experiments being done in this industry making consumers skeptical to a new technology. The technology shift has been swift enough to be in a consumer’s blind spot. Market will wait for a new solution to become stable before shifting in full force towards it. Demonetization although has provided an impetus to shift but, in totality, was incapable of providing a trust in this new technology. This trust will be generated with time and effort by FinTech companies. The result will definitely be futuristic, but as far as, present is concerned, demonetization was just like a yellow traffic light that is waiting to go green with no timer ticking on the top.   

In a nutshell, new payment methods are going to be convenient for consumers and quicker for merchants but it was not a result of demonetization.  The dissemination and adoption of these technologies is imminent. Corporations have to be ready for the change in consumer behavior because deployment of these solutions will become a challenge once the demand surges.

Further reads and reference blogs:

Tarush Bhalla (2016 July 15) 13 Biggest funded Fintech stars of India retrieved from https://yourstory.com/2016/07/biggest-funded-fintech-startups/

Usha Irani Das & Debdatta Das (2016 Jan 15) PayTM founder, Vijay Shekhar Sharma’s incredible life story retrieved from https://www.businessinsider.in/Paytm-Founder-Vijay-Shekhar-Sharmas-incredible-life-story/articleshow/50497089.cms