Can Demonetization make India A Cashless economy like Kenya, Sweden

On 8th November, 2016, the Government of India announced the demonetization of India’s two largest currency bills, accounting 86% of the total circulation in the country; brought a severe cash crunch prompting India to go cashless. Low penetration of non-cash instruments, lack of confidence of the public on digital payments, etc.… India has evolved as a 98% (by volume) cash-based economy, accounting for more than 70% of the total transactions (by value).  Despite the government’s intentions, the media has been bashing the idea (Cashless economy) with stupid claims about why India cannot become cashless rather providing solutions to the same. In this post, I will cover all the details on why India cannot go cashless, Case Study of two countries which adopted digital instruments to go cashless and what can India do to adopt the same to make our economy driven more digitally.



Is India ready to go cashless?


Why cannot India go Cashless?


According to a survey conducted by MasterCard in 2013, Singapore and Sweden lead the list with 60% cashless transactions while India is way behind with 2% cashless transactions. While Sweden is nearing 99% cashless transactions, India has a long way to reach at-least 50% cashless economy.



  1. Lack of POS terminals in India: – Brazil leads the pack with over 33,000 POS terminals per million people among emerging economies; India has only 700 POS terminals for every one million people (1.4 million in India). While you might argue with India’s population, compared to Brazil our neighbour, China has 4000 POS terminals for one million people in the country. While start-ups like ePaisa, MSwipe, etc… give POS terminals to merchants at a low cost, more innovative start-ups are necessary to improve the situation.


ePaisa allows small kirana shops to accept cashless payments at their stores

ePaisa allows small kirana shops to accept cashless payments at their stores

Click here to read the detailed post on ePaisa.


  1. Lack of ATMs: – India has only 200 thousand ATMs across the country due to less penetration of Debit and Credit Cards. Accounting for the same, on an average 11 transactions are done using credit cards and 2 using debit cards in India, the main reason for discouragement of usage of these cards is the lack of ATMs. ATMs promote a cash-based economy, but still the number of ATMs can be a determinant factor for Indians to use these cards at the POS terminals.
  2. Less penetration of Banks: – India has a total of 170 banks but most of its branches are located in the metros (Delhi, Mumbai, Kolkata, Chennai, Bangalore and Hyderabad) as it contributes to 40% of the total bank transactions. Due to less demand for banking services in rural areas, banks tend to neglect their reach in tier-II cities and rural areas.
  3. Low encouragement in the retail sector: – Basic essentials of the day constitute to 60% of the total value of this chain while others like clothing, furniture, electronics add more profits to this sector to run profitably (35% margin exists in the clothing sector). Food sector runs on low margins (sometimes below 5%), prompting the Kirana store owners for its customers to pay-in cash to cut its expenses incurred in having a high-speed broadband connection, 2% charge on payments made through credit cards, etc.… While large stores run their show due to profits in other sectors, Kirana stores generally refuse payments digitally.
  4. Mobile and Internet Connectivity: – India has close to 1 Billion cell phone connections, but only 300 million are connected to the internet. While a large chuck is connected to 2G and 20 million people using broadband, India has to go a long way to get people on the internet. Two reasons for the same: – Lack of purchasing power of costly data packs and less interest shown by mobile operators to provide connectivity to rural areas due to lower ARPU (Average Revenue per User), India still needs to work on mobile connectivity to promote digital payments.
  5. Smartphone penetration: – India became the 2nd Largest Smartphone market with close to 250 million users, but a major population still doesn’t use the new-tech phones due to less familiarity and costs.
  6. Affordability: – We have to encourage spending on internet connections and better quality Smartphones such that both don’t give up in a crisis situation. Today’s low cost smartphones and cheap data packs don’t give better battery life, security and high speed respectively. With less public WiFi access, the internet connection is an added burden over existing transaction cost both to the merchant and the customer
  7. Large country with less bandwidth: – India recently witnessed unprecedented digital payments after the demonetization almost 10 times in cab payments and acceptance of wallets like PayTM, led to clocking of the network due to high volume payments. When I shopped today with a MasterCard at a Kirana store, it took 10 minutes for the transaction receipt to arrive on my phone.
  8. India is the second largest English speaking country (100 million people approx.) (Though not fluently); but more than 1 Billion people don’t understand and communicate in English. A country with 1700 languages united under one roof, payment interface in major official languages isn’t in place, making it difficult for the large un-educated population to opt for digital payments.
  9. Security and Privacy: – Is our data safe? This is a major question mark when it comes to digital payments in India. With hackers gaining access to banking systems due to overloading in the past 15 days due to high volume digital payments, is India ready with security systems in place is the biggest question above all reasons stated above.



Major hurdles to go cashless in India


There are many reasons to be added, but the above stated ones constitute the majority vows to make India a cashless economy.


Case Study 1: – Sweden to go near-cashless by the end of 2016


Let’s speak about the irony first. In 1661, Sweden was among the world’s first countries to start paper currency notes. Roughly after 350 years, people in Sweden see a person with suspicion when he makes a payment through cash, assuming him to be doing some anti-law activities.


Reason to go cashless: – Robbery. The developed country has suffered many protests due to robberies in banks and residences in the late 20th Century. In 2008, over 100 thefts have taken place in banks reducing to all time low of 1-2 thefts in 2015, as the banks don’t have cash which could have been stolen (security being the other reasons)



Sweden is nearly cashless with better implementation of policies


How did they achieve it: – All major banks in the country came together to launch one digital payment app: – Swish. This app could be used to make payments at places like petrol pumps, local grocery stores, buses, etc…. even to donations in churches, such that the transaction is done directly between bank accounts on one platform.


Effects: –

  1. The money kept in the banks are at a negative interest rate of -0.5%
  2. The largest currency bill is 500 kroner (USD 60) as recently Sweden scrapped 1000 kroner currency bill
  3. The ATMs in the country are vanishing slowly, some still exist for people who aren’t able to adapt to the app payment
  4. Five major banks (out of 6) have already gone cashless in the country.
  5. By 2020, the country expects to not print currency bills while researchers predict another 5-10 years for the same to happen in Sweden due to aging population reluctant to use the digitised version of payment.


If you feel that Sweden being a developed nation, it was able to achieve the same easily, the next example would clear your ignorance on the same.


Case Study 2: – Kenya – lowest literacy and HDI in the world


Kenya achieved the same through mobile banking which was started by dominant telecom operator Safaricom in association with Vodafone group in 2007 through M-Pesa (M – Mobile and Pesa – Money in Swahili (largest spoken language in the hinterland)).


Reason: – M-Pesa was started to collect re-payments for micro-finance loans, evolved into a mobile banking system for the major population in Kenya for their daily needs like milk, grocery, person-to-person money transfer, etc.…



M-Pesa is playing the role of providing banking system in Kenya


How did they achieve it: – With only 840 bank branches in the country and less penetration of Credit/Debit cards in the country, M-Pesa built a strong retail store chain and 40,000 agents to keep direct contact with the customers of M-Pesa; they act like portable bank branches to the M-Pesa customers who can give them with hard-cash instantly and it is debited from their M-Pesa account. The agents and retail stores are paid commission on the number of customers they provide services. The customers join the network through a valid KYC which the government can use to check valid transactions and probably bring them to the banking ecosystem. Their success was accounted to the large market share of Safaricom in the country as a telecom operator. On a side note, the interest generated due to deposits of money from the customers is used for charity and other philanthropic activities in the country.


Effects: –

  1. Due to lack of banking services to a large population, the government has tied up with M-Pesa to provide seamless connectivity to the unbanked population.
  2. It has helped the government to control inflation, which is a serious issue in many African nations.
  3. Despite accounting for 70% of the transactions in the country, it adds value of only 2% to the economy. But still it has helped the government to focus on more serious issues in the developing economy rather concentrating on the unbanked sector.


Despite low penetration of internet and Smartphones in the country, Kenya was able to achieve a cashless society for the poor at a low cost such that the poor can live their life in peace and harmony, not worrying about robbery or cheating due to illiteracy.



Other countries which use cashless methods for transactions


  • Somaliland — One of the poorest African countries still struggling to get recognition as an independent country in the world, it has achieved financial inclusion through mobile banking system at an average of 34 transactions per user in the country through the mobile services system.
  • Belgium — Similar to Swish in Sweden, Sixdots is a digital payment app supported by all banks in Belgium, leading to 93% of the transaction through non-cash instruments.
  • Canada — The developed nation hasn’t printed any new notes since 2013 thanks to long life polymer notes (rather paper notes used in many countries including India) introduced in the country in late 20th Century and less demand for physical currency. Around 80% of the population prefers payments through non-cash instruments like wallets and credit/debit cards.
  • South Korea — This is something India can implement. It has resorted to a preferential VAT system to cash and non-cash systems, reducing the demand for cash in the country considerably to an all-time low of 20% now (on an average)
  • Denmark — With more than 30% of the population using MobilePay app to make payments, the government has set an ambitious target to do away with currency notes by 2030.
  • Norway — Banks have stopped giving cash to their customers (until a special case) in wake to reduce money laundering and accumulation of black money in the country, is in the race along with Sweden and Belgium to become the world’s first cashless country.


How can India evolve into a cashless economy


India can surely become a cashless economy with the help of private players like Visa and MasterCard, along with payment wallets like PayTM, Oxigen, MobikWik, FreeCharge, etc… but where is the regulatory authority for the same. India doesn’t have stringent laws to force companies to adhere to their customer’s security and privacy.


With 90% of the Indian smartphone users having Android OS as their mobile Operating System, all apps installed in Android devices demand permissions for access/modify contacts, get access to what the customer is doing on the device like phone calls, internet search data, etc.… geographical location of the user, track down the device used by the user through its IMEI code, MAC address, phone model and manufacturer specifications, etc… where is the assurance that our data is safe. With most of the start-ups funded by foreign so-called angel investors, can the government assure the safety of data and money of the mass Indian population? Click here to know “How PayTM pulled its POS merchant app within a day of launch due to security reasons”



I do not doubting the security of any of the digital wallets, but if they partner with the Government of India, the public can be rest assured of the safety of their data (something like M-Pesa did in Kenya with government support). Personally on a side note, I am a huge fan of  PayTM’s Vijay Shekhar Sharma, who at a young age with the zeal to succeed made India’s most relied start-up PayTM.



While through the government start-up UPI (United Payments Interface) the government can ensure security and safety of the customer’s data and privacy, instead of allowing private and foreign players like Visa, PayTM, Mastercard, etc.… the government has to create a robust platform using the security features developed by NPCI (National Payments Corporation of India), provide better access of RuPay cards at all POS terminals, etc… in order to secure the consumer data. UPI works both on feature and smartphones.





Working of the UPI






The hassle free QR Code payment which enables instant payment without even knowing the virtual address of the payee.



Click here for deep analysis of United Payments Interface, how it works and its benefits. 



If cashless economy becomes a reality, the government can do away with Income Tax from recovering the costs by charging for bank transactions according to the ArthaKranti Proposal. I am a believer of the ArthaKranti Proposal. Click here to read the full details of the same. If nations like Kenya and Somaliland can do, then we Indians can implement it in the way developed countries like Sweden, Singapore, South Korea, etc… has done for superior financial inclusion.


The government can implement the following policies like

  • Levy taxes for cash payments
  • Reduce the transaction fees through non-cash payments
  • Reduce circulation of large currency bills in the country
  • Team up with telecom operators to introduce free data services for UPI-based apps such that people don’t have a second thought to do digital payments as they don’t have make incur data costs
  • Bring the entire un-organised labour sector into the banking system in order to curb black money circulation (by their employers)
  • Educate the illiterate to use these payment modes by showing its advantages and ease to use along with a spark of patriotism which was seen well in the demonetization drive, helped the government take its time to control the cash crunch
  • Introducing door-to-door cash correspondents (in remote rural areas where ATMs and bank branches don’t exist) to deliver cash for their digital wallets/debit cards.


More solutions are welcome. Fill the comments section with the same. Share this post such that the people are educated to the benefits of payments through non-cash payments; remove the myths about cashless payments, etc…. On your favourite social media platform like Facebook, Twitter, Google Plus, LinkedIn, Pinterest and Whatsapp.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.