India’s Demonetisation: A Push to Digitalisation

Currently, at the core of developed nations runs the emergence of a ‘3rd industrial revolution.’ Tech is becoming increasingly embedded in our day-to-day lives and shifts the modalities of human function. In India, Prime Minister Modi’s ambitious futurist plan for Indian society prioritises the need to ‘keep up’ with this trend towards digitalisation. Central to this is his demonetisation policy; in November Mr Modi made 86% of Indian cash currency unusable in a push to simultaneously reduce the amount of ‘black money’ muddying the banks, but also to encourage the digitalisation of currency through the adoption of new technologies via wealth management and banking. However, there are huge infrastructural, political, and economic roadblocks to Mr Modi’s ambitions that future start-ups in India need to consider.

Demonetisation presents a novel opportunity for fintech firms; unprecedented bank account penetration in a country with only 53% of people with accounts. The potential market in India is undoubtable, 1.2 billion people in a developing nation with proliferating access to the internet is a prime opportunity to ride the wave. Paytm, an off-shoot of the e-commerce goliath Alibaba, has had an accelerated account penetration with triple the surge in usership since demonetisation was rolled out. Moreover, Oxigen Wallet’s users increased by 167%.

The problems, however, are ginormous. India has a crippling rich and poor divide, ever more apparent through the emergence of more sophisticated technology for the middle and upper classes, and juxtaposed to that, 29% of households with no power. The sad reality is that until infrastructural problems are rectified, there will consistently remain a sector of the market untouched. For companies looking to operate in the space, they need robust corporate social responsibility departments to understand and improve the grassroots situation. This includes initiatives to promote electricity in homes, pledging money to lay down cables and infrastructure across the rural parts of the country, and most importantly, lobbying the Indian Government to act instead of using it as an election tactic.

The political issues remain largest; the amount of corruption plaguing the Indian Government means there’s no assurances infrastructure for power will be laid down in a time-sensitive manner. Instead, as with the haemorrhaging of money to produce the 2010 Commonwealth Games, time-frames will be long and the results will not be reliable. As a fintech company looking to exploit the lack of bank account penetration, ensuring effective infrastructure is in place is paramount.

Demonetisation attempted to solve the issue of black money and corruption plaguing Indian society. By outlawing $210bn (INR14.8 trillion) and staggering the printing of new notes, Mr Modi attempted something unprecedented against corruption; taking away the source. Additionally, Mr Modi sought to formalise the informal sector, where so much black money is bandied around and the Government doesn’t earn any taxes. Economically, firms looking to seize the underserved may face a bigger challenge; convincing people to declare their cash.

Perhaps the final hurdle, which the Indian Government now face, is compulsion. Forcing citizens to adopt digitalisation is risky business, and the marketing strategy of neobanks with apps instead of branches will need to get clever. There is a proportion of the population that will invite digitalisation with open arms, yet in a country where traditionalism and parochialism are paramount, convincing them will prove a time-consuming activity.

Whilst the current Indian Government are busy demonetising for reasons a, b, and c, the Indian people continue to live in a perpetual juxtaposition of rich and poor. For emerging start-ups on the fintech scene, this is a wave one can start to ride, and yet for the foreseeable future, encounter extreme challenges for embedding oneself in Indian society. How quickly and freely digitalisation will take hold is completely down to smart manoeuvring on the part of companies.