How Demonetisation changed Digital Transactions usage (or not)

One of the primary goals of the recent demonetisation exercise was to forcibly nudge Indians towards digital transactions. During the peak of cash shortages in December and January, digital transactions did show a sharp rise. With cash back in abundance now, debit card usage has dropped back to pre-demonetisation levels. But the steady growth in new digital payment systems like UPI and PPI seems to be continuing.

Digital Payment Systems

Total Value of Digital Transactions, by Payment System

RBI provides data on all digital payment systems. Some of these, such as RTGS, are used for transferring large amounts, and are generally used by High Net worth Individuals (HNI) and by companies.

Some reports quoted a total of 149.5 lakh crores of digital transactions reported by RBI in March 2017. The reality is that over 149.0 lakh crores of this were transfers using RTGS, NEFT, IMPS, or checks (CTS) or automated payments (NACH).

Wallets, UPI, USSD

We are mostly interested in debit and credit cards, mobile wallets (PPI), UPI and USSD. USSD is the payment system designed to be used with a non-smartphone.

Digital Payments by Value (Crores). Left: All Payments Systems. Right: Consumer-oriented Payment Systems

Comparing the value of transactions using differing payment systems, we see that UPI and wallets are still very small and USSD is yet to make a dent.

Note: The numbers provided by RBI for mobile banking and card transactions is for 4 or 5 banks only, and are to be used as a representative sample.

Looking at the trends, total transaction value is still growing for UPI and mobile banking. Mobile wallets (PPI) transaction value is steady, but USSD value is already declining in the last two months as the convenience of cash has returned.

Total Transaction Value (Crores)

Similar trends are seen in the number of transactions per month. UPI is growing slowly, wallets are steady, and USSD has dropped below the January peak value.

Number of Transactions (Million)

Debit and Credit Cards

Using a debit or a credit card at a POS (point of sale) machines is the most obvious way one could do a digital transaction, especially since they are so ubiquitous. There are now over 80 crore debit cards in a population of 125 crores, but then there are only 22 lakh POS machines where one can use these cards.

From the data on card usage released by RBI, we see that demonetisation created a surge in debit card usage. The number of transactions per card almost tripled in December, but since then it has started declining steeply.

The number of ATMs has barely changed by 2%, but the number of POS machines has grown by over 45% from October 2016 to Februray 2017.

Let us start with debit cards since they are much more ubiquitous. These numbers include debit card usage at POS machines only, and not cash transactions at ATMs.

Debit Cards

Until September 2016, the average amount spent on a debit card was below Rs 250 per month. Number of transactions per card was less than 0.2 per month. There was a small increase in October, possibly due to festival season.

From November onwards, as the cash crunch set in, debit card usage went up significantly. At the height of the cash shortages, the number of transactions per card more than doubled to 0.55 in December. The average amount spent on each debit card tripled to over Rs 760.

Debit Card Usage at POS machines

What happened to these numbers once cash started becoming available more freely? The number of transactions per card has dropped from 0.55 to 0.4 in January, and further went down to 0.3 in February. The amount spent per card has also come down from Rs 760 to Rs 600 and Rs 425. Even after the sharp drop, the average spending per debit card is still more than double what it was before demonetisation.

Through all this, the average transaction size was steady, increasing from 1200 to over 1400.

As cash becomes freely available, and some of the incentives for debit card usage are removed, it is quite likely that debit card usage will fall back to the pre-demonetisation numbers. We will know in a few months whether any of the forced gains in debit card usage due to demonetisation are going to stick.

Number of Debit Cards (Crores) and Total Amount spent at POS machines (Crores)

There is one positive note though. While average card usage has dropped from the peak, the number of debit cards has grown significantly, from 70 crores to over 80 crores. The total amount of transactions too has dropped recently. But at Rs 34,000 crores, it is still more than double what it was earlier. This may seem like a large number, but to put it in perspective, it is only 0.2% of India’s GDP in 2017–18.

Credit Cards

Credit Card usage at POS machines

Credit cards are not as common in India as debit cards. There are less than 3 crore credit cards, as against 80 crore debit cards. Credit cards are typically used by the higher income population, so let us see how credit card usage was affected by demonetisation.

RBI data shows that credit card usage was affected much less, with the number of transactions per card going up by about 30% from 3 to 4 transactions per month. Average spending per card saw an increase of 15% during the peak, and has come back to normal levels.

Number of Credit Cards (Crores) and Total Amount spent at POS machines (Crores)

The average spending on each credit card is Rs 10,000 per month, which is 24 times the average spending on each debit card. This shows that credit cards are limited to people in the top 10% of income earners.

As with debit cards, the number of credit cards too has increased, from 2.5 to 2.9 crore, and the total spending has gone up about 15% to Rs 28,000 crores.

Some trivia

Which bank’s customers spend the most on debit cards and debit cards?

Among the domestic banks, HDFC Bank’s customers spend the most. They spend slightly less than Rs 2,000 per month using their debit cards at POS machines. In comparison, SBI customers spend just over Rs 320 per month.

And which bank issues the most debit cards? The answer is of course India’s largest bank State Bank of India. One out of every 3 debit cards in India is issued by SBI, and a large number of these are linked to bank accounts created recently as part of the government’s financial inclusion drive.

If we look at the top 10 banks in terms of credit card spending, we do see a couple of public sector banks in the list, with SBI between HDFC Bank and Axis Bank.

Source: Reserve Bank of India, Bank wise ATM, POS and Card Statistics, and Representative Data on Payment systems.