Will Digital Payments Solve India’s Black Money Woes?


Will Digital Payments Solve India’s Black Money Woes?

In a cash transaction, there is no documented evidence of movement of money and thus enabling black money to thrive. Imagine a economy where all payments for purchases or P2P money transfers are done through digital payments(mobile/online), every paise will be accounted for. As fictitious it may sound today, it will be a reality in few years and would solve the black money problem to a large extent!

Black Money : Tap The Source?
Black Money : Tap The Source?

There are several examples where cash transactions are already being replaced by digital payments i.e, we are seeing a transition from ‘unaccounted money’ to ‘accounted money’!
Bus industry: A few years ago, almost everyone used to pay cash for bus travel, but now we use Redbus (or similar services).
From one of Redsbus ppt’s in 2013, the market size for bus ticketing industry is ~22 cr (220 mn) tickets/year and Rs 18,000 cr (US$3 bn) market growing at 25% per year. Redbus also recently declared sale of 3 cr (30 mn) tickets which at an average ticket price of Rs 600 amounts to Rs 1,800 cr (US$300 mn). If we assume, Redbus having a market share of 65%, then online bus ticketing is already ~Rs3,000 cr (US$500 mn).
This means online bus ticketing already has 16% market share and I strongly believe that in next 5 years, this number could be more than 50% which would mean online bus ticket bookings worth Rs 10,000 crs (US$1.7 bn)! (a big move from cash transactions to digital transactions!)
Cab industry: Cabs is a Rs 36,000 cr (US$6 bn) industry with 5.5 lac commercial cabs registered in the top 10 cities (source). Ola, Taxiforsure, Uber, Meru, Tabcabs etc are already organizing this space- all of them put together may have close to ~60,000 cabs which is ~ 10% of the total commercial cab market.
Uber already takes payments only through credit cards and eliminates the whole process of paying cash to the driver. Ola has also introduced Ola Wallet with a great 100% cashback offer till 31st October. Meru has also tied up with Citrus Pay to offer digital payment service.
Based on some of the numbers mentioned in this research presentation by Valoriser as of June 2014, close to ~1,25,000 rides/day happen every day which at an average of Rs 600/ride amounts to Rs 2,500 cr (US$400 mn) annually (accounted money). Of this already close to 10% ~ Rs200 crs is happening through credit cards/wallets.
With the way this industry is growing, we can easily expect organised cab market to grow to Rs 10,000–15,000 crs (US$1.6–2.5 bn) market in the next 5 years.
Groceries: We all buy groceries/veggies by paying cash to the neighborhood grocer/vegetable vendor. However, we already have Bigbasket, Ekstop, localbanya trying to change that. Bigbasket is already doing close to 5,000 deliveries a day with an average billing of Rs1,600 amounting to ~Rs300 crs (US$50 mn) annually. This market is also growing at a fast pace and in the next 5 years may touch ~Rs 5,000 crs+.
Restaurants: This segment has already started seeing traction with players like Tastykhana and Foodpanda. Tastykhana plans to do revenues of Rs100 crs by 2015. Very soon, Zomato plans to launch a payment solution through which restaurants can offer customers to either pay cash or through Zomato’s digital wallet. Zomato covers more than 50,000 restaurants in India and even a small market share of the transactions will mean a substantial movement from cash to digital.
Doctors: Generally when we visit doctors regarding any of our health problem’s they charge us fees from Rs 500 upto Rs 5,000 per visit depending upon the seriousness of problem & status of doctor- which is always paid in cash!
Practo, Lyberate, Justdial are already working to make doctor discovery easier along with appointment booking and will sooner or later start accepting payments on behalf of doctors leading to a shift from cash payments to digital payments.
E-commerce: In e-commerce marketplace model, companies like Snapdeal are aiming to get 100,000 sellers online in the next one year. Some of these sellers may have sales from physical stores as well where they may collect payments as cash (unaccounted), but when they sell on a e-commerce marketplace they receive money from the e-commerce company and hence is accounted for.
Example for some more clarity: Alfa in Mumbai only collects cash payment (unaccounted) and when they become an e-commerce player (directly or a seller on one of the marketplaces), their payments will be accounted for.
General: We will also see shifts towards digital payments accelerate in the next 5 years with companies like Justdial launching JD Cash, Facebook launching payments, Apple Pay launching in India.
I am expecting that above sectors will easily shift more than Rs 50,000 crs/year of payments from cash to digital payments in the next 5 years. As cash accumulation goes down, it would directly reduce the black money in the system leading to lower corruption and other systemic benefits.
Which other companies/sectors do you think will participate in this movement from cash transactions to digital money?
[About the author : Guest article by Sandeep Reddy (@hsrdce), with Research inputs: Sweta Parasavedi.]
Image credit : shutterstock

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