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KOLKATA: Cash is no longer king – at least when it comes to paying for consumer goods. Cards and consumer finance are becoming the dominant modes for settling bills in urban India, with buyers moving away from counting out notes at the till. Retailers and bankers attribute this to the government’s clampdown on black money, regulators’ sustained efforts to push digital and electronic payment systems and the easy availability of credit among other factors.
Purchases made through cards and loans accounted for 55-60% of all white goods and smartphones bought during Independence Day sales in large cities for the first time, said sellers and manufacturers. The story is similar in lifestyle retail and food and grocery. Consumer electronics makers Videocon, LG and Panasonic said purchases are being dominated by non-cash transactions.
Videocon Chief Operating Officer CM Singh said with black money getting sucked out of the system and low down payments for loans, consumers are opting for finance to buy big-ticket products. Panasonic India Chief Executive Officer Manish Sharma pointed to another trend – more than half of all buyers are in the 18-24 age bracket and they are willing to try out new technology-enabled e-payment options.
At sportswear and shoe maker Puma, non-cash transactions accounted for 53% of all purchases in July compared with 49% a year back. Short-term data suggests that the anecdotal evidence may reflect a trend, although this is by no means conclusive. Currency held with the public was Rs 16,6140 crore on July 22 as per the latest available numbers published by the Reserve Bank of India, a marginal 1% fall from the June 8 level.
The shift is also evident in ecommerce, where cash-on-delivery has traditionally been the largest purchase mode. At Amazon India, digital payment methods have become dominant in the last few months, said a person aware of this. Amazon did not reply to an email.
Future Group CEO Kishore Biyani said consumers are showing a clear preference for buying with cards and digital wallets thanks to the many incentives on such usage such as cashback offers. This move is also taking place in food and grocery purchases, he said.
The government has made it compulsory since January for buyers to provide their Permanent Account Number (PAN) for cash transactions over Rs 50,000 and for all transactions over Rs 2 lakh as part of efforts to curb black money. This acts as a big discouragement on the use of cash to purchase high-value products such as premium smartphones, large-screen LED televisions or designer apparel and shoes.
The Reserve Bank of India (RBI) has been prioritising migration to a cashless system by ensuring the safety and security of such transactions through such steps such as two-step authentication. The number of credit and debit cards in the country rose 19% in June from the year earlier, while the number of swipe machines at points of sale has gone up by 26%. Leading consumer finance provider Bajaj Finance reported a 55% growth in business in the June quarter from the year earlier.
Axis Bank’s head of cards and payments Sangram Singh said the migration to non-cash transactions is being driven by the greater availability of cards and the rise in swipe machines.
Non-cash transactions are estimated to grow by over 45% by 2020, said Devang Mody, president, consumer business, Bajaj Finance. “Already in large stores in metros, around 90-95% of transactions are non-cash. Of this, 55% is estimated between credit and debit cards, while 35% is through EMI (equated monthly instalment) finance,” he said.
The central bank is contemplating making the merchant discount rate, which banks levy on merchants for card-based transactions, easier for both banks and retailers, to encourage installation of more point-of-sale machines.
The rise in electronic payments is most encouraging. Spin offs include automatic audit trails, transparent accounting and minimising the risk and cost of handling cash. The cost of electronic payments should also come down to popularize the use of plastics. Rationalisation of the interchange fees for use of banks’ ATM network by customers of other banks, for example, would be useful. The government, on its part, should deploy Big Data analytics to all payment data to nab tax evaders.
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