Demonetization is inflection point for India’s digital payments economy: E-comm giants

India is a country which has population of 1.25 billion, approximately 660 million debit cards and 25 million credit cards. In theory, the country is almost ready to go cashless, but where it lacks is the point of sales solutions terminals that stand at only 1.5 million.
In a scenario where there is lack of basic infrastructure, Government’s decision to demonetize Rs 500 and Rs 1,000 denomination notes could have resulted in a situation of helplessness and chaos. However, thanks to the growing acceptance of digital payments and surge in mobile phones sales, smartphones emerged as a virtual point of sales solutions with e-commerce biggies like Snapdeal, Flipkart, Shopclues, among others, witnessing an uptick in the demand and usage of digital payments over the last seven days.
Read: Demonetization a Masterstroke, give it time to play out: CII
India’s e-commerce top bosses – including Flipkart founder Sachin Bansal, Snapdeal’s Kunal Bahl, Shopclues co-founder Sanjay Sethi, PrimeVenture Partners Sanjay Swami, and Founder CEO of CCAvenue, Vishwas Patel, recently come together under one roof to welcome the Government’s move, to assure that the short-term negatives will soon fade away and to point out that the move will have a positive impact on their business and the overall economy in the long term.
Talking about the benefits of PM Modi’s move at the Digital India Foundation event held in Delhi, Kunal Bahl said,”It is groundbreaking for the nation and not just for the e-commerce businesses. When we look back, we will feel proud that our country was the first to go digital among emerging economies.”
Echoing Bahl’s sentiments, co-founder and CEO, Shopclues, Sanjay Sethi, said, “I grew up in an era where population was always a problem. However, now it is becoming our biggest strength. The opportunity is huge and we are very excited about what the future holds.”
“Moreover, in addition to consumers in metro cities, small town consumers are also entering the digital payments curve. For us, tier-II and tier-III areas performed much better than metropolitan cities, as most of the orders (from the former areas) were paid in advance. Our Cash on Delivery (CoD) percentage is more in metropolitan areas,” he added.
CoD – A New Payments Novelty
Despite their upbeat mood, the company bosses did say that the discontinuation of CoD has led to up to 30 per cent fall in CoD orders resulting in temporary hiccups. However, a fast recovery is being noticed.
“Yes, we have witnessed a short-term drop in the business due to the move. But we expect it to make our business efficient in the long term,” Flipkart’s Sachin Bansal said. He also mentioned that CoD was always a temporary move when they started up years back but digital payments are the future. “It is already having a positive impact on our business,” he added.
Snapdeal’s Bahl also said that CoD orders on its platform had come down to 30 per cent of the overall sales. “After the announcement, CoD orders have declined to 30 per cent of our sales from 50 per cent.” But from unit of economies perspective it’s a great decline.
Read: Currency Ban: E-tailers disable CoD, huge surge in business for mobile wallet cos
“CoD returns are a big pain point from an economic and logistics perspective. From an economics perspective, it is positive for e-commerce firms. This, though, will also get significantly mitigated going forward as more payments move to digital,” he pointed out.
Sethi noted that in the first four days, the company saw a decline of about 15 per cent. “Overall, there was a fall in sale of about 15 per cent,” he said.
Read: Snapdeal’s COD business marginally hit by demonetization
Following the announcement on the evening of November 8, Amazon and Paytm had temporarily halted the CoD facility. While Flipkart and Snapdeal set limits on the value of orders that could be delivered through the service. Snapdeal, which owns Freecharge came out with ‘Wallet on Delivery’ option to ensure that consumers continue to shop.
“People opt for CoD because a lot of people wanted the product before they pay for it. But the same can be done with the Card on Delivery or Wallet on Delivery. In fact, since the launch (of Wallet on Delivery option), 15 per cent of our orders are already coming from Wallet on Delivery option.”
Similarly Flipkart, which has now resumed its CoD services, also ramped up Card on Delivery services.
“Post the announcement, we took the initiative to provide every possible facility for a smooth and seamless order processing. We significantly ramped up our card on delivery facility and covered majority of pin-codes, also reaching remote towns. In the last few days, we witnessed a lot of movement towards electronic transactions and we expect the economy to further support this change. Customers are also actively using wallet cashback facilities,” Flipkart said in a statement.
Demonetization Impact: Offline retailers play the digital card to counter drop in sales
All company representatives, however, felt sure that the surge in digital payments is bound to come down once cash is flushed back into the system. Nonetheless, they are optimistic. They feel that demonetization will help alternate payments grow organically, converting cash consumers into digital consumers.
“The equilibrium will settle at higher level than when we entered the demonetization phase. Also now our duty is to make digital payments more convenient and much more rewarding so that the customer finds depending on cash cumbersome.” Bahl concluded.