India’s Cash Struggles Shows the Limits of Its Payments Infrastructure

In a review of the Indian government’s attempts to reduce the amount of cash in circulation, Rahul Mattan writes that India’s payments infrastructure needs help before that can happen. Of course, these gaps in infrastructure also highlight the value of cash for merchants and shoppers.

But it isn’t just the costs that merchants worry about. India’s digital payment infrastructure depends on online authentication, and given our sometimes patchy network coverage, transaction approvals can take a while to come through. In areas where connectivity is poor, there is even a risk that transactions just won’t go through. Merchants worry that customers will either be unwilling to wait for the time it takes to get an approval or else shop in some other store if their transactions fail to go through. This sort of delay can be fatal for businesses that depend on high volumes of sales. In comparison, cash transactions are quick, offline and, being legal tender, never run the risk of not going through.

The drive towards a cashless society in any country is a drive for eliminating a consumer payments choice, which is problematic for consumers, merchants, or financial service providers. Companies should work to develop a strategy that is inclusive of as many payments types as possible rather than focusing on eliminating any one of them.

Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Group

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