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4

Over the last few days, I've had many discussions with various people about going cashless. So far, I haven't met anyone who applied for internet access if they didn't already have or installed a payment app if they didn't already have, contrary to reports in media (which may possibly be largely limited to the metros). Here are some reasons I found out.

Ours is an area that would classify as a town though it has now been clubbed with several other towns into a city. It is close to Mumbai and a lot of people who work in Mumbai but can't afford to live there live here. About half the population is lower middle class and tenants in the properties of people in Mumbai who have purchased flats here as an investment - me too. There are also several people who are quite poor and live in slums and old buildings in small cramped quarters. In other words, there are few people who'd qualify as rich in this area or even well off enough to not care about monthly budgets - perhaps some of the more prosperous shop owners. Our building is probably among the most "posh" in this area and there are maybe 6 cars parked in the compound with a few hundred flats, and 3 of those are cabs.

Note: I am neither for, nor against the use of cashless transactions. It is a useful method for those willing to spend that little bit extra for convenience. It is invaluable for doing online payments and a handy record of spending in bank account doesn't hurt for those, like me, who cannot remember where they spend money five minutes later. However, forcing people to go cashless is extremely unwise, in my view. Regardless, this is merely a disclosure of where I stand and the below are not my views. 

Domestic workers

I spoke with several of these. My regular maid usually gets paid into her bank. Another I hired to help her out financially takes cash. Apart from these two, I spoke with about 4-5 others. Only one of them who was previously getting paid in cash is getting paid by cheque this time (she will be withdrawing the money for use, not spending cashless). Among the others, reasons varied. They found the bank intimidating and cash easy and familiar - is a common sentiment. All but one of the others didn't have their own bank accounts and did not want to deposit their income into the accounts of their husbands or other family members. The remaining one had a bank account in her village, and when she applied for a new cheque book, it got delivered to her village address, so she wants cash till she has a way to withdraw money. Only my maid has a smart phone that is compatible with an app (she didn't buy it, she is using my old one) and she uses it without an internet connection. The phone automatically connects to the WiFi when she comes into range, but she has never shown any interest in using the internet and is reluctant to do it now. In any case, I would never advise her to begin her introduction to the internet with a high stakes thing like payments.

Vegetable vendors

I've spoken with about a dozen of these. Most of them didn't know about apps. I informed them. They don't think their transactions are large enough to afford commissions to receive money on. Additionally, there aren't people buying. No one seems to have asked them if they will accept an app payment, so they don't think there is any point in using it unless people in the area adopt it.

Grocers

Business is very low for grocers, but none of them showed any interest. When people have money, groceries are a priority, and they usually offer credit to regular buyers at such times, so they don't think an app will add any business for them. Like the vegetable vendors, no one has offered to pay them by app so far.

Car mechanic

I spoke with one. Business is down enough to be as good as zero. No work other than emergencies like punctures is happening. No one has offered to pay him by app before, but he would consider it if there promises to be a good amount of business. We speculated on the possibility of vehicle owners being likely to own phones that could install such apps and perhaps trying to pay that way if he put up a board, but he didn't sound anywhere like he was headed for a download. He would have to upgrade his own phone first - it is not a smartphone. Another reason he was reluctant is that he would likely have completed the work first and then if the payment did not happen, he could suffer a loss. I explained that there was very little chance of that happening, but it is unfamiliar tech and he is not internet savvy and I couldn't with any sense of ethics recommend it beyond discussing it as a possibility for the same reasons as my maid - first experience of the internet being payments is asking for trouble.

Garments shop

I spoke with two. Both had near zero business and were very interested in the app. They had smartphones and had even experimentally downloaded after seeing all the ads. However, the problem is that no one is coming to their shops at all. Whether paying with cash or cashless. There are no customers at all.

Housewives

I spoke with several asking if they had considered buying using an app. All of them had some money (one of them having borrowed from me). All of them had priorities and were managing those priorities in the cash they had, which admittedly is very little. None of them were interested in using an app to buy anything. They would rather cut corners and buy when they had the money. Some were making do with dal and pulses and onions and potatoes they could get on credit from the grocer and skipping buying vegetables when they didn't have money, but they weren't interested in installing an app so they could buy clothes - for example.

I am also a stay at home mom, but I am cashless enabled, so to say, so writing my experience separately, because it is different from theirs. I follow news rapidly, and anticipated the problems with cash that would happen, so within the first few days, I had my money converted locally - without paying a single rupee as commission - in medical shops and such. I further withdrew money from ATMs at the crack of dawn to find smaller queues, knowing that people would be needing to borrow as well as my second maid would need a salary. I have cash. There is a Reliance Fresh where I can swipe my card, but I have not used any cashless payment at all since demonetisation, because I believe those unable to accept cashless methods are really suffering for business, so I'd rather spend in their shops.

People with jobs in offices

Most of these in our building are male, but there are a few women too. They mostly seem more inclined to save mone rather than use cards or apps. Most of them have cards. Most of them use cards to withdraw money from ATMs as possible. None of them use cards for anything except withdrawing money from ATMs, though they are aware, and one of them had used cards to make payments before and knows how to do it.

I didn't find any credit card users other than myself in our building and among people I spoke with. One woman whose husband works abroad has an add on card to his credit card for emergencies, but she has never used it. She is also the one who has used a debit card for purchases before.

4

The government began with focusing on fake currencies and black money as the reason for demonetisation. As deposits started rapidly piling in banks and it looked increasingly unlikely that there was a lot of black or fake money being caught, the goalposts started shifting.

Soon it became evident that the supply of legal notes was nowhere near adequate and worse, going by the capacity to print notes, it would take another 5 to 6 months to return the amount of money withdrawn from the country. Then came disclosures of problems with notes, inappropriate prioritization of the 2000 rupee note, which is available relatively abundantly, but without the intermediate 500 rupee notes, only serves to reduce the limited liquidity with the existing 14% of notes left to people.

Suddenly the talk seemed to turn to a cashless India. Government spokespersons on TV as well as Modi himself have given up all talk of black money and suddenly demonetisation is all about a cashless India (which got rapidly ridiculed with comparisons to the cash-less reality) and upgraded to a less-cash India. This is a terrible idea.

Necessity is not utility

If it were useful for India's sellers to accept cashless payments by paying a charge on the transactions, they would already be cashless. The government wouldn't have to recommend it at all. The fact is, cash transactions are highly efficient. They work instantaneously and reliably with no other infrastructure needed - bank accounts, devices, connectivity, electricity to run said devices.... and they are FAST. Taking a note or five from a wallet, handing it over, acceptig change back takes way less time than devices connecting, verifying, blah blah blah. Even swiping a card takes more time. AND unlike cash, you pay a fee every time it is used. Whether it is the buyer or seller charged, the cost will ensure the buyer pays for it. No seller is an idiot.

A few sellers may have adopted these methods in a bid to increase the business the government killed, but it is highly unlikely that they will prefer these methods to cash, if they hadn't found them useful before. A few businesses catering to buyers likely to own cards may continue, but that is an entirely different planet from cashless India.

To give a very crude example:

Bottom line is that cash works. Starving the country of cash will not work because hoarders will hoard and the government will have to issue adequate cash to keep country running. This kind of deprivation will in fact cause more people to hoard. A domestic example (I'm full of them) - before the demonetisation, I'd been a happy mostly cashless user for over a decade. I live in a small town and yet my maid and grocer are paid with online transfers by the month. I very rarely had any cash other than the notes in my wallet which usually ran out and I lived a day or two on simple credit if needed - since I had no daily expenses as such beyond vegetables. Today, I have over 10 thousand rupees in my drawer - because I know I need to pay the other maid (whom I hired merely because she was desperate) in cash in another week or so, but then people will be crowding to draw salaries. I have also kept enough cash at home, because unlike normal times, when I could hop over to an ATM and withdraw when I needed, there is no telling when I may find an ATM with a queue I'm willing to brave. This is happening everywhere. 20 days of banks giving out money the best they can, and our local market looks like this:

People aren't even thinking of spending. They will not spend on anything unnecessary, no matter how much cashless you scream, till they feel reassured that they have enough cash for contingencies. That is going to be a long, long way away.

Inadequate penetration of debit cards

India has 24.5 million debit cards, most of them saturated in urban areas, and people often owning several among those who do. My home for example has two adults and 8 debit cards between us. so 24.5 million being the number of cards is unlikely to be anywhere close to actual card users. Further, cash withdrawals at ATMs is most of the use these cards are put to with 88% of transactions and 94% of the total monetary value of all debit card use. Which brings us right back to cash.

Inadequate penetration and extreme difficulty obtaining credit cards

A few days after demonetisation was announced, I got a call from SBI offering me a credit card. The limit was to be from 30 thousand to a few lakh - I forget details. Interested, I agreed. Ignorant of the ways of credit card companies, I expected that they would estimate my limits by my salary or deposits, etc. Turned out that they blocked a fixed deposit and issued a credit card against it for less than the amount of the fixed deposit. Unclear why anyone would use a credit card at all instead of their debit card, in that case. I got several other offers. Curious about this phenomenon, I replied to the offers with varying information about my income. Unsurprisingly, I found that I had to be rich enough to be able to spend the money directly in order to be able to use it on credit at rates that would put a shady rural moneylender to shame. It makes no sense and I don't think I'll be using that card. I think this option of going cashless is irrelevant to most of India's population - other than the corporate salaried class - got more interest out of them if I said I worked in an MNC - which, let's face it, may be the loudest population of India, but hardly the top empoyment.

Online and mobile banking

Let me narrate here an incident in my home recently. My maid, who pays for her gas in cash and uses her debit card strictly to withdraw money from the ATM as needed, got an SMS from her gas provider saying that she could pay for the gas online. The conversation went something like this:

The fact of the matter is, online transactions are complex and to the internet illiterate are a financial catastrophe waiting to happen. It is far better for people to learn about internet security with Facebook accounts and verifications and email passwords and lost passwords and recovery and hacked Twitter accounts than to begin their internet experience with a high stakes gamble like the contents of their bank account because their government forced them to do it for survival.

Make no mistake, if people don't have cash and get taken in by this propaganda, very soon you are going to have operators of cyber cafes with passwords to a hell of a lot of accounts as aunties line up their with electricity bills and bank slips containing their login ID and passwords in hand to pay the bill so that their electricity is not disconnected or to charge their Paytm account so they can pay their grocer. And they would not have the knowledge of how to change their password either. They would learn eventually, likely with hard lessons that leave them with nothing to protect, and this is not the way to do it. Too much risk.

Literacy rate in India

India's literacy rate stands at 74.04% - but this is an illusion. A lot of "literate" people of poor economic status are barely able to read and rarely in English, which is currently required to transact efficiently online, understand bank statements, secure their accounts, change passwords and PINs and more. Some things like using cards or withdrawing cash from ATMs can be done in Hindi or other languages, but even examining transaction slips and more still happens in English. Internet banking is mostly in English.

Computer literacy is even lower. Smart phone usage may be slightly better, but it is still under 30% of the population.

Electrification and internet penetration in India

I am not even going to talk of percentages here. To go cashless, an absolutely uninterrupted electric supply and internet connectivity is non-negotiable. And, to put it very very mildly, we are nowhere near 100%

Business margins

Business margins over every single transaction are absurd replacement to freely exchanged cash. For high value and infrequent sales, it may make sense. To buy your vegetables, Paytm may earn more than the vegetable seller's profit at the end of the day. Tomatoes are selling at 10Rs a kilo. One kilo is a hell of a lot of tomatoes.

Business readiness

Twitter is currently awash with stories of cashless fails. I had one yesterday. I couldn't find my debit card, so rather than risk it being stolen and misused, I blocked it. Five minutes later I found it. But while I can block it online, I cannot unblock it using the same security available to my entire bank account with access to online banking. If a thief has access to online banking, they don't need to unblock cards, they can simply transfer all the funds out. The bank has my phone, my email AND my access to online banking secured with passwords and OTP, yet something as simple as unblocking a card can't be done within minutes of blocking it and I must go to my home branch 2 hours away. If the card got blocked by someone while trying to pay after two hours of filling a shopping cart, would be a really fantastic cashless experience! This is the country's biggest bank!

If I was in a city and living cashless as Modi recommends, what was I to do? Beg for money to get home in spite of having plenty? Banks like Bank of Baroda or Indian Overseas Bank don't allow online generation of PIN for ATM cards - you must go to the home branch. How is a cashless India even possible with the biggest jugglers of money being so primitive?

Other issues like Paytm account blocking in the event of a lost phone being completely abusrd, to inexperienced sellers charging over a lakh rupees instead of over a thousand rupees accidentally and not knowing how to reverse charges. There are plenty of nightmare stories.

Security issues

Internet banking is a lucrative area for hackers, and India is not extraordinary on security. Just weeks before the demonetisation was announced, an ATM hack had defrauded many people of their money. While banks blocked cards and issued new ones, there is no information on any investigation or arrests made. Or, for that matter, for most cyber crimes beyond "objectionable" content on social media, which is usually busted because of a lack of anonymity - a newbie mistake, no hacker into financial systems will make.

There are security issues with banking apps

I'm just going to paste this here.

 

Forget cashless India. Go pre-dawn to some ATM that gives out Rs 2000 notes - they have shorter queues. Do this a few days and you'll have some cash to use till this nightmare is done.