Cash transactions are beginning to trump almost every form of digital payment alternative with April clocking a decline in volumes as well as value of transactions conducted through cards, mobile banking and the Unified Payment Interface (UPI).

The trend assumes significance six months after the Centre announced demonetisation of ₹500 and ₹1,000 notes on November 8.

The near-completion of the remonetisation process and merchants unwillingness to pay user charges also known as the Merchant Discount Rate (MDR) to banks has resulted in a slump in demand for new point of sale (PoS) devices, according to industry players.

“When the cash wasn’t there, demand for our services and products shot up by about 20 times,” said Praveen Dhabhai, chief operating officer, Payworld, told The Hindu. “But it’s reducing now. There is an MDR charge that is applicable, which has to be paid to the banks, and cash is now available almost the same as before. The small merchant doesn’t want to pay that MDR charge of 1% or 2%,” said Mr. Dhabhai whose firm provides electronic payment solutions to merchants in semi-urban and rural India,

In addition, Mr. Dhabhai pointed out while merchants are moving away from card transactions due to the MDR charge, other payment systems like Aadhaar-enabled payments, UPI and Bharat QR are all relatively unpopular in smaller towns.

The RBI’s database shows that Immediate Payment Service (IMPS) transactions contracted 3.4% in volume and 0.5% in value in April 2017 compared with the previous month. In contrast, December saw a growth of 46% and 33% in the volume and value of IMPS transactions.

Similarly, the volume of UPI transactions grew only about 11% in April, down from 47% in March. The value of these transactions contracted 8% in April as opposed to a growth of 25% in March. Card transactions contracted 3.6% in volume and 1.1% in value over the same period.

E-wallets

E-wallets were the only commonly-used mode of electronic payments that witnessed a growth (4%) in the value of transactions in April and players in the space are optimistic that this trend may stick. “Since demonetisation, the number of transactions per user has gone up more than three times and we have noticed a healthy surge in the average number of use-cases per customer,” a Paytm spokesperson told The Hindu. “Our current growth rate and transactions volumes are also way higher than the earlier average.”

“We have seen a steady growth in transactions,” said Daman Soni, Head — Growth at MobiKwik. “Additionally our loyalty programme, Supercash, has helped increase our transacting users by 17%.”

Overall, financial technology experts say that the government could take more steps to encourage the shift to digital payments but do admit that the attraction of cash is very tough to combat.

“What is clear is that from the government’s side, the foot is not off the pedal,” said Vivek Belgavi, partner and fintech leader, PwC India.

“A lot of the interventions are going to be on the merchants’ side. So, some of the concerns like MDR will likely be addressed in some additional steps by the government. It’s tough to beat the anonymity and convenience of cash and that challenge will remain. So as cash returns, people will use it,” he said.