By Prashansa Srivastava
A study report by global financial services bigwig Visa says that four metro cities of Delhi, Mumbai, Bangalore, and Chennai can reap benefits of $7.2 billion annually by increasing payments through digital means. A net benefit of up to $470 billion per year, which is equivalent to 3 percent of the Gross Domestic Product (GDP) could be reaped by increasing reliance and expanding the reach of electronic payments, such as cards and mobile payments.
The benefits of digital payments
The study conducted by economics and evidence-based research firm Roubini ThoughtLab and commissioned by Visa examined the economic impact of increasing use of digital payments in major cities around the world including the four Indian cities.
Mumbai, with a population of 19,547,000 and GDP of $104.1 billion, could gain $2.9 billion annual net benefits. Delhi can gain $2.2 billion (GDP $74.4 billion); Bangalore $1.3 billion (GDP 44.7 billion) and Chennai can realise the benefit of $0.8 billion (GDP 30.9 billion), the report added. An increase in the use of digital payments in the city can have positive impacts that extend beyond financial benefits to consumers, businesses, and government. They can have a catalytic effect on the city’s overall economic performance, including GDP, employment, wage, and productivity growth.
Digital payments are also crucial in achieving the goals of developing smart cities. Digital payments eliminate the hidden costs of cash and make the process more cost-effective for both individuals and governments. Traceable electronic payments bring about more transparency and compliance, reducing corruption. Increased use of digital payments is economical in terms of time for consumers and businesses. It reduces cash related crime, boosts business sales, leads to greater efficiencies, and increases tax revenues for governments. A greater adoption of digital payments could enhance stakeholders productivity by reducing the amount of time spent on payment related activities.
Lou Celi, Head of Roubini ThoughtLab, added, “The use of digital technologies–from smartphones and wearables to artificial intelligence and driverless carsis rapidly transforming how city dwellers shop, travel and live.”
By providing citizens with access to basic financial tools and bringing more individuals into the economic fold, digital payments will aid India on its journey to a more inclusive society. If India successfully unlocks the power of digitalisation, cities can transform and better themselves and become more liveable, sustainable and poised for future growth.
Slowly gaining traction
Slowly yet steadily, digital payments seem to be gaining traction in India. The growth has been due to numerous factors such as smartphone penetration, Internet, e-commerce, growing dependence of apps and more. India has recently witnessed a boom in m-commerce transactions, a testament of the wide availability and penetration of inexpensive smartphones and decreasing mobile data charges.
However, many challenges loom ahead in cities being able to harness the benefits that digitalisation can bring. Limited digital literacy and lack of adequate infrastructure threaten to put the disadvantaged on the wrong side of the digital divide. Indeed, lack of infrastructure supporting card payments in rural areas has been the primary reason card transactions remain at less than 1% of total transactions. By excluding poorer states, the inequalities between states can further widen.
Moving towards cashless
Age-old cash habits could act as another deterring factor, especially now when cash is back in circulation and the effect of demonetisation is fading. Both government and private players should keep consumers and merchants motivated to use cash-alternative payment instruments. Growth inhibitors can be overcome by providing incentives to small merchants and expanding digital payments in microtransactions itself. The jolt of demonetisation must foster future growth in electronic payments. Digitally evolved consumers, well equipped private players and concerted efforts of the Reserve Bank of India and Government of India are three key factors that can ensure the permanence of the digital revolution and ensure that the disruptive act of demonetisation was not just digital shock therapy for the Indian economy, but the first step towards a cashless economy.
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