5 years of Demonetisation: How digital payments and lending picked up post note ban

The extensive use of technology during Covid-19 pandemic provided further acceleration to the digitisation process.

The demonetisation of the old Rs 1,000 and Rs 500 banknotes from the midnight of November 8, 2016, took everyone by surprise. While people suffered during demonetisation to get cash and exchange the banned notes, it gave a big boost to digital currency.

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“Demonetisation led to an acute shortage of cash in the economy which in turn led to an increased acceptance of dealing in digital money. According to the reports released by RBI, total credit card outstanding surged by 39 per cent from September 2016 to September 2017. Access to credit cards was limited to the affluent and the higher middle class of the country. An increase in penetration of low-cost smartphones and the low cost of 4G data further accelerated the Indian population’s access to connected phones with the android/ iOS app ecosystem. There was always an unmet demand for quick disbursal small ticket personal loans. A large unorganised market made of loan sharks thrived on this. Demonetisation and access to 4G connected smartphones led to people accepting this format of loans digitally much better,” said Ankush Aggarwal, Founder, Avail Finance.

As liquid cash became scarce, even street vendors started accepting digital currency, giving a platform for fintech startups to mushroom.

“The advantages of online credit are multifold, the customer does not have to wait in bank queues for hours and days to fill 5-6 page long forms. The entrepreneurs of the country took it up as a challenge to improve the experience of getting access to credit and the result of that is a variety of lending apps providing access to credit in a variety of form factors i.e. direct bank transfer, scan & pay, buy now pay later and so on,” said Aggarwal.

How digitisation is changing the saving and investment behaviour of individuals

The sufferings during demonetisation and adoption of digital payments made people better prepared to survive the prolonged lockdown period during the first wave of Covid-19 pandemic. The extensive use of technology during the pandemic also provided further acceleration to the digitisation process.

“All of this was accelerated even further recently by the Covid-19 pandemic. We have seen over a 50 per cent rise in UPI transactions among the blue-collared workforce in the last 18 months. Thanks to India Stack, users have become comfortable availing themselves of personal loans and credit lines via lending apps like Avail Finance. The application process on the app combines the benefits of Aadhaar based e-KYC, UPI Autopay, and Account Aggregator framework to provide seamless and instant credit access. Users have also increasingly become aware of their credit score and track it regularly online on Avail App,” said Aggarwal.

With instances of cyber frauds increasing along with adoption of digital payment methods, the government has taken various steps to secure the system along with making the processes easier.

“Multiple stakeholders in the ecosystem including NPCI, RBI, UPI payment companies, and private lending companies are building products and services to solve multiple problem statements of the digital financial ecosystem. The pace of innovation in the fintech area is unmatched to any similar times in the history of time. In summary, demonetisation became a trigger point of the fintech revolution in India followed by multiple waves like an increase in smartphone and 4g data penetration and Covid,” said Aggarwal.