Cash is set to lose currency in India, as an explosion in smartphone usage drives a digital payments boom, according to a new report.
By year 2020, nearly $500 billion worth of transactions in India will happen digitally, using online wallets and other digital-payment systems, 10 times the level currently, according to a report by Google India and The Boston Consulting Group.
Indians traditionally prefer to save and spend in cash, and a vast majority of the more-than 1.2 billion population doesn’t have a bank account.
Last year, 78% of all consumer payments in India were made by cash, whereas in developed countries like the U.S. and U.K., only 20% to 25% of such payments were made that way, the report said.
But the reliance on notes and coins in India is likely to diminish, as spending habits change and financial services reach more people, said the Google-BCG report. It expects cash-based consumer payments to fall to 40% to 45% by 2025.
A sharp increase in the use of mobile phones with internet connectivity will help drive the move to digital payments, said the report.
India has more than 1 billion mobile subscribers, a quarter of whom use smartphones, according to the report. By 2020, the number of smartphone users in the country will likely be 520 million, and the number of internet users 650 million, twice the number currently, according to the report.
Personal internet banking has become more popular in India over the past few years along with digital payment options that allow users to settle mobile phone, electricity and even taxi bills.
The recent spurt of growth has come from non-bank companies offering payment services. Cellphone companies like Airtel and Vodafone offer facilities to transfer money using phones, while “wallet” companies like One97 Communications’ Paytm unit, and MobiKwik, allow users to store money digitally and pay through their systems.
The next level of growth will come when local mom-and-pop grocery stores start accepting digital payments, said the report.
However, there are plenty of consumers and merchants who still feel skeptical of digital payments, or find them too complicated, said the report. And others just don’t want to give up using cash, it added.