A Year After Demonetisation, Small Retailers Make Tentative Shift To Less-Cash

From grocers to milkmen, everyone started accepting online payments after Prime Minister Narendra Modi’s note ban last November. As cash returned and the initial euphoria waned, the volume of digital payments declined. Yet, demonetisation managed to nudge retailers to go less-cash.

The shift towards digital transactions is higher in cities, said Praveen Khandelwal, national secretary of the Confederations of All India Traders, a lobby group of small traders and businesses with around six crore members. A year ago, only two-three percent of customers opted to pay by card, he said. “That’s changed as 15-20 percent prefer to swipe now. Up to 7 percent rural customers make card payments.”

The decision to invalidate old high-value bills pulled nearly 86 percent of the currency out of circulation. Small retailers took a hit as they mostly dealt in cash, especially for low-value transactions. Many started accepting cards and other digital payments to offset losses. And as the share of organised retail grows, mom-and-pop stores have little choice but to make the switch.

Transactions have risen steadily, with new payment modes like e-wallets and United Payment Interface growing at the fastest pace. The number of card-payment terminals too rose more than 80 percent to about 28 lakh units since the note ban till August, according to the Reserve Bank of India data. Of all digital payments, 70 percent are made by cards and the rest through applications and payment software, Khandelwal said.

Preferences have changed since demonetisation, said Atul Chedda, manager at a clothing retail store Sangoika Shirts at Dadar in central Mumbai. “Compared to few digital payments before the cash ban, about a quarter of the customers now pay through debit or credit cards.”

For Bharat Satra, owner of Time Store watch outlet in Dadar, digital transactions rose after November. Earlier, 50 percent of payments were made by card, which has now gone up to 80 percent, he said. “I don’t expect card payments to rise further, but it’s definitely easier for me since the money goes straight to my account.”

The cash crunch after the note ban also nudged smaller retailers dealing in low-value products to switch to mobile wallets. Stores in tier 2 cities started accepting payments through Paytm, Kiran Vasireddy, its chief operating officer and senior vice-president, told BloombergQuint over the phone. The number of retailers on its platform jumped from 8 lakh to 50 lakh.

Wallets are yet to gain wide acceptance at stores though. The Cake Studio at Elphinstone, Mumbai lets customers pay through Paytm. Of 50 people who walk into the patisserie, one or two choose the e-wallet, said owner Nimish Dedhia. “Half of the customers pay by cards.”

The frequency of digital payments has steadily declined as cash in the system is now close to its earlier levels. Sweets and savoury snacks maker Samant Brother's in Dadar started taking card payments after demonetisation as the business took a hit. A year later, almost all his customers now pay by cash, said owner Amreesh Samant.