E-commerce Towards a Cashless Economy, The New Normal


With e-commerce in India at a nascent stage and a huge potential for growth. The recent government push towards a cashless economy has created a large cash crunch in the economy. In a country where nearly 90% of transactions are carried out in cash, a bold move to transform the nation into a “cashless” economy has created chaos. Demonetization is intended both to eliminate unaccounted “black” money and pervasive corruption in the country and to bring more accountability in cash-based informal sectors.

Honerable Finance Minister of India Mr.Arun Jaitley, said, “One way to curb the flow of black money is to discourage transactions in cash. Now that a majority of Indians have or can have a RuPay debit card, I, therefore, propose to introduce soon several measures that will incentivize credit or debit card transactions, and disincentivize cash transactions.” While this can impact the GDP negatively in the short term, it should have positive long-term consequences.

The Impact on Cash On Delivery (COD)

Even though e-commerce industry have always encouraged cashless transactions, the cash crunch has affected the business of many industries and can have a significant impact on the “Cash on Delivery” model. COD is considered as a necessity in the Indian e-commerce market. While it boosts sales of online companies, the demonetization obstructs e-commerce’s cash flows and makes it difficult to scale operations.

About 80% of online shoppers in India, including those on Huetrap’s platform, opt for COD while buying a product. Even though people in the metros are increasingly using debit and credit cards for transactions, things outside the metros leave much to be desired.

What Experts Have To Say About This

Dinesh Agarwal, Founder & CEO, IndiaMART.com, points out “Now e-commerce players will not have to incur the extra cost, time and risk of COD payments, as and when all card transactions become a reality.” The risk of returns and thefts with this form of payment are higher. Hence, this should help e-commerce companies to reduce overhead costs and other risks associated with the COD model.

According to Forrester Research, the demonetization will bring the cash on delivery mode of e-commerce sales down significantly and increase the online payments.

Govind Rajan, COO, FreeCharge, said, “With the recent announcement by the government around waiving off surcharge and convenience fee, this move will further open up the scope for automation of payments at fair price shops by embracing new forms of digital payments like wallets.”

Upswing of Digitization – E-payments and E-wallets

Since social security platforms like Aadhar are also digitalized, the cashless economy is a positive sign for e-commerce. With digital payment already gaining traction, among the various options towards a cashless or less cash economy, e-payments and mobile wallets are gaining wider acceptance. “Our focus really is on solving problems of payments and making payments frictionless. In today’s offline world, bill payment is a cumbersome process and as we solve those issues, more and more consumers will come up,” says Govind Rajan, COO of FreeCharge.

With this uptick in the number of users, there is a clear indication that the wallets have moved from the big cities to smaller towns. Bipin Preet Singh, Founder & CEO at MobiKwik, a leading mobile wallet company said, “A major reason for the increase in wallets is the simple and convenient user interface as against the bank interface. Many users also feel wallet transactions are safer than credit card or net banking transactions.” The wallets allow a user to load cash from a minuscule amount to a maximum of Rs. 10,000, and the risk associated with the loss of money through transaction is minimal (as claimed). Apart from this, the wallet companies provide high-security standards for customers during transaction.

The surge in the usage of smaller players has prompted many major players like telecom companies and banks to enter this segment. India’s leading bankers – SBI, ICICI Bank, HDFC, YES BANK have launched wallets called SBI Buddy, Pockets, Chillr and YES PAY respectively.

Incentives and Discounts

There has been a rapid growth in the digital transactions through the use of credit/debit cards and mobile phone applications/e-wallets etc. To further accelerate this process, the Central Government has decided on a package of incentives and measures for the promotion of digital and cashless economy in the country. Finance Minister, Arun Jaitley announces slew of measures to promote digital dealings at a press conference, as mentioned in The Hindu.

The Future

“UPI (Unified Payment Interface) is one of many innovations taking place in the financial sector that will benefit the customer. What we have in India is the most sophisticated public payments infrastructure in the world. (But) It is not just the payments that are part of the revolution; it is a whole new set of banks that are coming in.” said Reserve Bank of India Ex-Governor Raghuram Rajan. The system will allow customers (also merchants) to promptly transfer money across different banks with a single identifier profile which will act as a virtual address and eliminate the need to exchange sensitive information such as bank account numbers during a financial transaction.

“It is going to make small value payments more electronic. I think what UPI can do is bring next innovation such as e-payments on delivery,” said Chanda Kochhar, Managing Director and Chief Executive Officer (CEO) of ICICI Bank Ltd.

“In a lot of ways, cash on delivery and wallets exists in the interim until we find the final version (of payments). We are hoping that UPI will solve the last-mile final gap and make our experience for users a magical one,” said Sachin Bansal, co-founder, Flipkart.

“Payments has been one of the biggest hurdles for mass adoption of online shopping in India. UPI has the potential of transforming the entire payments ecosystem in the country,” Flipkart CEO Binny Bansal said on 1st of April.

You could pretty much do everything without cash. Some say it could mean the end for wallets—a temporary step between traditional payment mechanisms and a full-fledged digital one such as UPI. While others say, it will make it easier to own and operate wallets. This is probably the kind of culture; Arun Jaitley had in mind when he spoke of moving to a cashless economy in an attempt to clamp down on black money.

This shift towards digital payments and cashless economy may seem a no-win task during the transition period. But in the long run it will benefit the e-commerce industries.

Reference Links:

Times Of Indiahttp://epaperbeta.timesofindia.com/Article.aspx?eid=31804&articlexml=CUTTING-CASH-Banks-may-have-to-report-credit-23062015018019

The Hindu – http://www.thehindu.com/news/national/Go-in-for-cashless-transactions-and-get-discounts-says-govt./article16778219.ece



India Today – http://indiatoday.intoday.in/technology/story/budget-2016-tech-industry-impressed-by-jaitleys-balancing-act/1/608575.html

Indian Express – http://indianexpress.com/article/technology/tech-news-technology/unified-payments-interface-upi-payment-system-faster-easier-and-smoother-2754125/

Live Mint – http://www.livemint.com/Industry/BTgri6AXTbue3WFPyp6dEN/Unified-payments-interface-new-banks-signal-revolution-in-b.html


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s