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Reuters/Jonathan Bainbridge
Cash versus digital.
QZ&A

Mastercard says India will become a less-cash economy—but only in 10 years

By Nupur Anand

As ATMs run dry in India, the Narendra Modi government and the payments industry have learnt an important lesson: cash isn’t going anywhere.

While the government shifted the goalpost several times following November 2016’s shock demonetisation, one of its key objectives was to increase digital transactions. And though spending via cards and mobile money did increase, the levels are nowhere close to the initial estimates.

But despite the bumpy ride, digital payment firms are not perturbed. Sarah Quinlan, Mastercard’s head of market insights, believes cash transactions will reduce, but only in a decade or more, by when consumer behaviour will change. After all, India has a significantly high penetration of mobile phones and is also home to a fairly young population. This section of consumers is more comfortable with technology and is most likely to adopt digital payments with ease.

Also, the cost of printing and handling cash is high, therefore the benefits and convenience of transacting via card or digital will soon nudge people into shifting to e-payments.

Quartz spoke to Quinlan about Mastercard’s fight against cash, the evolving customer, and the firm’s plans for India. Edited excerpts:

Cash is returning to the Indian economy and ATMs are running dry. What went wrong?

I think what happened here is that the economy accelerated and the government wasn’t prepared. Digital transactions have picked up, it has fallen from the highs that we saw immediately after demonetisation but it is still increasing. There is no doubt that there is still a huge cultural version of cash here and so there is miles to go. It will take another 5-10 years for India to become a less-cash economy. If the government continues to have a strong will, it can be faster. However, we still have a lot of work to do and a long way to go in India.

What do you think can be the game changer in India’s digital payments journey?

The key thing in India is that almost everyone has a mobile phone, so that will end up playing a crucial role in payments. The huge young population that can adapt easily and has used technology from day one will play a critical role. As more of these people enter the workforce, we can expect digital transactions to increase. The way to get people to use it is by keeping it simple, less friction, and show them the real benefits of using it.

Why have some form of digital payments such as QR-based and the near field communication technology not taken off in India?

The challenge is getting everyone together at the same time in these payment methods. So consumers, merchants, card issuers, and the government, all need to be on the same page for these transactions. And it isn’t an easy task. 

You’re also working with the government to accelerate digital payments. Can you give us some details about it?

We are looking at how to digitise certain payments to reduce the cash burden. The most important area would be transit because there is a lot of cash that is used in that segment. Apart from transit, the other key area is restaurants because we can see that Indian consumers are dining out more.

As e-transactions pick up, so do cases of online fraud. What is Mastercard doing to prevent it?

We are looking at tokenisation to reduce frauds and are planning to bring it by this year end to India. So for instance, when you are making a transaction, this service will take your 16-digit number (on the card) and will automatically create a random number, very different from your card details, and that’s a token. In this ecosystem, it is very difficult for a fraudster to replicate your card details. So a merchant only knows what you are buying and your address but they don’t know your bank or card details. 

How has the Indian consumers’ spending habits changed?

Indians are spending more on discretionary items. We see a substantial rise in spending on restaurants, clothing, and jewellery apart from usual items such as grocery and fuel. This acceleration in spending reflects an overhaul in the economy that we have been seeing in the last six months. 

Some of the recent reports suggest that Indian consumers are still not optimistic, so what explains this increase in spending?

The interesting thing is that what people say and what they do can sometimes be very different. And as I am looking at the data, I can say that if people truly felt nervous, they wouldn’t be spending at all but that is not the case. There are still challenges that the Indian economy needs to deal with…but people have begun spending.