Digital Financial Services Cheer Change In Indian Notes

Many were surprised when Prime Minister of India Narendra Modi announced the discontinuation of 500- and 1000-rupee notes on Tuesday in an attempt to curb fraud, corruption and illegal tax evasion, and illegal cash holdings. Citizens will have from Nov. 10 through Dec. 30 to deposit notes in banks or exchange the discontinued bank notes for new currency.

Digital financial service companies are excited about the potential for change. India’s mobile wallet service Paytm, whose biggest shareholder is Alibaba, reported a 200 percent increase in app downloads and a 1,000 percent increase in money deposited in its wallets since the announcement.

The change could mark a major step in India becoming a cashless society, though the private sector still has some work to do providing affordable mechanisms to replace the cash economy.

The nation of 1.25 billion has been priming technologically for such a transition for awhile now. Mobile banking has been on the rise in India. The number of mobile users in India is expected to pass that of the U.S. in 2017, and already a majority of internet access in the nation is done on mobile devices. Visa, Mastercard and PayPal have all lauded the Prime Minister’s move, and Visa recently launched its new mobile pay service for all Udio mobile app users across India.

Less excited about the change are organizations that rely heavily on cash transactions, such as India’s real estate sector, companies supplying consumer goods or food services, and other small operations across the country. Although India’s central bank will release a new series of 500- and 2,000-rupee notes later this week, many have expressed concern.

After the announcement, many Indian citizens flocked to make ATM withdrawals and convert their cash to gold — which prompted some wholesale jewelers to raise prices up to 23 percent in the frenzy.

Bachhraj Bamalwa, director of the All India Gems & Jewellery Trade Federation, noted that the current demand for bullion will likely die down at the end of December when the cash is no longer valid. Cash withdrawals from ATMs have since been limited to 2,000 rupees a day.