A few months ago, on 8 November 2016, an unexpected announcement jolted the Indian nation. In a nationally televised address, the Prime Minister of India, Mr. Narendra Modi, announced the demonetization of rupees 500 and rupees 1,000 currency notes. This meant that the currency notes would no longer be considered as legal tender.
The rupee 500 and rupee 1,000 notes at the time of demonetization represented more than 86 percent of the total value of currency under circulation.
Withdrawal of such a large quantum of higher value notes from circulation meant that all cash transactions had to be done using currency of lower denomination. This led to a shortage of currency notes of the lower denomination. It is in this context that the government actively pushed digital payments.
The digital payment push had implications and learnings for IT security and IT governance professionals, providing an interesting case study for the adoption of digital payments. The Indian population represents almost one-fifth of humanity, India is among the top 10 economies of the world in absolute value, and its per capita GDP is comparable to countries in the middle tier. Thus, the sample size is large enough that the learning seems relevant to other economies.
The data related to the adoption of digital payments is still under examination. It is, however, abundantly clear that digital payments are gaining momentum. Digital payment adoption, especially using mobile phones, have seen an increase. The adoption is not just by the affluent society but also by common people for daily transactions like buying a cup of coffee, paying for a haircut, paying taxi fares and purchasing daily provisions. App-based payment solutions, including digital wallets that store cash and make digital payments, saw a surge. The significant increase in digital payments did not see serious incidents that dissuaded people from its use. It seems that the environment, the government and stakeholders took the right steps:
- The government promoted opening of bank accounts by all citizens. Within a few years, the number of households with bank accounts jumped from 58 percent to 99 percent. People who did not have bank accounts earlier and relied on cash transactions now were capable of digital transactions using bank accounts.
- Leveraging mobility and apps for digital transactions was a game-changer. With an easy-to-use interface, the transactions were simple even for first-time users.
- Adoption of digital solutions accelerated post-demonetization; however, the solutions were previously available for a few years and had gained maturity.
- No major cyber security issues were identified in the digital infrastructure and apps, denoting that robust architecture was deployed.
- The Reserve Bank of India – the country’s central bank – had promoted an institution called the National Payments Corporation of India (NPCI), an umbrella platform for retail payments. An app that used the platform, enabling real-time, account-to-account digital payment, was offered. This app provided an option to digital wallets and avoided monopolistic actions by privately owned digital wallet providers.
More information will emerge that will lead to better solutions with respect to digital payments. The digital payment push, however, has taken a giant step, and provides a learning for the whole world. This change is here to stay!