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In a surprise move, Prime Minister Narendra Modi announced, effective today, all currency denominations of Rs 500 and Rs 1000 will no longer be considered as legal tenders to make transactions and will be phased out. In place of them the Reserve Bank of India will be circulating new Rs 2000 and Rs 500 notes.
Some important information for everyone note:
The RBI said that this was necessitated to tackle counterfeit notes, and nullify black money hoarded in cash and curb funding of terrorism with fake notes.
From 10th November 2016, the value of these notes can be tendered at any office of the RBI, bank branch and post office and the amount will be credited into their bank accounts. For immediate cash needs, these notes of value upto Rs 4,000 per person can be exchanged for cash over the counter of these bank branches.
ATMs and other cash machines will remain shut on 9th November 2016 to facilitate recalibration. When ready, they will be reactivated and cash drawals from ATM and other machines will be restricted to ₹ 2,000 per day.
Non-cash methods of transactions such as cheques, NEFT, IMPS and RTGS will not be affected and people are allowed to transact through them. However, cash withdrawals from bank accounts, over the bank counters, will be restricted to a limited amount of ₹ 10,000 per week.
This is has massive ramifications for the digital payments as India is still an economy which is dominated by cash. Simply put, the cost of doing a cash transaction is a lot more cheaper than doing a digital transaction. Here are some of the things which we think will see happen over the next few months and days:
– Cash on delivery orders will fall: Ecommerce sites in India will rejoice with the Prime Minister’s move. More customers will be placing orders through cards and netbanking. Although, it remains to be seen what will happen to existing orders which have opted for cash on delivery during the period of demonetization. Ecommerce sites will have to provide alternate means of payment to customers.
– Transactions on debit cards will increase: Historically, debit card usage in India has been low despite having more than 697 million cards in circulation. Now people will seek to preserve Rs 100 notes for smaller transactions and use debit cards to pay for higher value transactions.
– POS Terminals usage will surge: POS terminals in the country will see many people opting to pay via cards. That said, the number of POS terminals in the country is abysmally low with just 14 lakh machines for more than 697 million debit cards in circulation. The RBI will have to probably set up the Acceptance Development Fund (ADF) for card payments to get more players on board.
– Mobile wallets will push customers to load wallets: I’ve already got notifications from Paytm, Jio Money and MobiKwik telling me to go digital within hours of the announcement.
We have got two words for you: Paytm Karo.
— Paytm (@Paytm) November 8, 2016
However, it remains to be seen if MobiKwik and Paytm will accept Rs 500 and Rs 1000 notes through cash pick up facilities to be put into their wallets and if they will take liability for exchanging the notes at banks.
— Upasana Taku (@UpasanaTaku) November 8, 2016
– The UPI will be more crucial to the digital payments landscape: The National Payments Corporation of India (NPCI) will have to speed up adoption of the Unified Payments Interface (UPI ) over the coming months to make sure that there are more banks on the payments platform.
– More efficient cash management at ATMs: Recently the RBI had issued a directive to bank ATMs to ensure that atleast 10% of their ATMs dispense Rs 100 bank notes . This will probably have to be made more institutional now as higher denominations of Rs 2,000 coming.
How do you think the digital payments landscape is going to change? Let us know in the comments or through email.