India is of course one of the countries undergoing a rather fundamental change with regard to a changeover from cash payments to other methods. This has been fueled by government policy and a steady rise in the appearance of funded fintech companies. This piece provides a view into whether or not the reality of cashless will ever meet the hype, given the lack of infrastructure and also that old habits die hard, certainly on the B2C side.
Cash withdrawn from ATMs in March this year stood at 2,259 billion — 0.6% more than what people withdrew in the same month last year. March trends showed that people were slowly getting back to their habit of hoarding and using cash……. Another BCG study reports that India has only 2 POS3 terminals per 1000 cards compared to 20 in the UK and 13 in the US. The prevalence of cash and the lack of infrastructure begs the question – will B2C digital payments be able to keep up with the expectations that have been set by us?
The author goes on to postulate that perhaps a more logical expansion for electronic payments in India is through the various B2B channels, especially accounts payable technology. The specific example used is the existence of a substantial SME market, and how cash remains king even for businesses. The theory goes that each business with 500 employees may deal with up to 200 vendors, and achieving 25% electronic payment penetration with vendors has a ripple effect throughout the ecosystem (SME Portion mentioned to be providing 40% of GDP). This does not even include getting the employees paid electronically. So the potential for geometric expansion seems more real on th B2B side.
Managing payments is a big headache. Majority of the transactions are made in cash. There is a lack of transparency, extensive bookkeeping involved and long reconciliation time. Also, there is room for errors due to manual processes. Business processes take more time to complete as the physical movement of cash takes time. To manage payments more effectively and efficiently, businesses need more than just vanilla current accounts and corporate cards that traditional banking offers. They need a next-generation technology platform that eliminates manual processes and brings in automation and mobility; a single platform via which they can fund, track, report and reconcile payments.
Those following the B2B payments space in the more developed economies would see that the connection throughout the cash cycle between various solutions has been undergoing fast relative change recently, with numerous and ongoing deals between networks, banks, fintechs and so on. We suppose that formula should also work well in India.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
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