Cash Is King (Again) in India’s Cashless Village

Dhasai, a hamlet of 6,000 people, was named Maharashtra’s first cashless village.

A customer makes a card payment with a bank card. 

(Photo Courtesy: Simon Dawson/Bloomberg)

Nirmala Bhanushali spent Rs 2,000 to get a card-payment terminal for her grocery store at Dhasai in rural Thane, some 100 kilometres north of Mumbai. She calls it a waste of money. “Out of 10 customers, one pays by card.”

The hamlet of 6,000 people was named the western Indian state’s first cashless village, less than a month after Prime Minister Narendra Modi scrapped old Rs 500 and Rs 1,000 notes on 8 November last year.

As people queued up outside branches to deposit the withdrawn bills, state-run Bank of Baroda initially installed swipe machines at about 40 of the 185 registered stores selling staples to stationery, said Pramod Gaikar, a local panchayat member. Others like Bhanushali who were not the bank’s customers had to open current accounts with a minimum balance.

A year later, most traders have gone back to dealing in cash because of poor internet connectivity, frequent power cuts, and payment charges.

Dhasai symbolises why a sudden move to change behaviour is almost unlikely to work. More so in villages that are home to about two-thirds of the 120 crore Indians – at the last count in 2011.

Over a dozen traders BloombergQuint spoke to, use feature phones. None accept payments through smartphone-only mobile wallets like Paytm or the BHIM application the Prime Minister unveiled. That underscores the larger challenge to the digital initiative as a CLSA report in July said that two-thirds of mobile devices sold in India are 2G-enabled basic handsets. Landline connectivity is poor outside cities, and less than a fourth of 118 crore wireless users in Asia’s third-largest economy are connected to the worldwide web, according to the telecom regulator’s July data.

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Customers at a pharmacy at Dhasai village, some 100 kilometres north of Mumbai. (Photo: BloombergQuint) 

Immediately after the demonetisation of high value currency notes, Dhasai was touted as a model for change. Up to 90 percent of the payments had gone cashless, said grocery store owner Suresh Mandhane. The response was good during the cash crunch. But as banks stocked up the two ATMs and branches in the village with new currency, he said the usage declined. “It’s down to about 15 percent now.”

Gaikar said no one thought it fit to take their opinion before declaring Dhasai cashless. An average villager here earns about Rs 400 a day, and most don’t deposit wages in banks, he said. “There are no organised jobs. Income is meagre and literacy low.”

Two Bank Branches for 27 Villages

Not many have credit or debit cards either. The two bank branches at Dhasai serve 27 neighbouring villages. Among 11,000-odd accounts with Vijaya Bank and 26,000 with the Thane District Co-Operative Bank, only 3,500 were handed debit cards, Gaikar said.

“Why should I take a swipe machine when people don’t have cards,” said Shivaji More, owner of a shoe store. “They will anyway pay by cash.”

For Kailash Gholap, the problem is low-value payments at his roadside stall of chips, chocolates and candies. “Who will pay one, two or 10 rupees by card? I don’t need a machine for that.”

Fruit vendor Yashwant Mahadev agreed.

Unlike them, Madhse had opted for the card-payment terminal. A tailor for 25 years, even he has given up. Cash is the easiest and the most preferred payment mode for him again. Moreover, power outages at the village can extend up to five hours a day making card payments difficult, he said. Supply has improved only since Diwali.

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In any case, a point of sale (PoS) terminal is not an ideal solution for small payments. That’s why the government has been pushing mobile wallets and the Unified Payments Interface that allows fund transfers between banks. Yet, awareness is low. Mandhane, among the few traders with a smartphone, said his son helped him download the BHIM app. But villagers either don’t have smartphones or don’t know how to use it, he said.

Ramesh Mandhane going through the list of goods he purchased from his wholesale dealer at his store in Dhasai, some 100 kilometres north of Mumbai. (Photo: BloombergQuint)

Perhaps, the one trader who could do with a card-payment device is Pappu Singh, the local jeweller. More so when the government wants to curb high-value cash transactions. Yet, Singh said he applied for a machine from Vijaya Bank after demonetisation but didn’t get one.

Vijaya Bank said it has forwarded all requests to its main office and is following up on it. Also, the bank has made ATM cards mandatory but “some customers insist on not wanting one and the bank can’t do anything about it,” said Narayan Kori, branch manager.

The branch does not have the exact number of cards distributed so far.

Bank of Baroda has a digital centre in Dhasai and the accounts were opened by a branch in Saralgaon, about 10 kilometres away, Dinesh Singh, branch manager, told BloombergQuint over the phone.

The main problem is the BSNL network and transactions at times take 10 minutes, he said. The bank has held meetings with “local officials to create WiFi zones.”

Transaction Fee a Deterrent

For Bhanushali and Mandhane, there was another reason to discourage digital payments: charges. “I lose around 2 percent on every card payment as I can’t pass on the transaction fees to customers,” Mandhane said.

Clothing store owner Sanjay Bafna, among the first retailers to opt for the terminal, said costs are a deterrent. Even the local pharmacy owner, Ramesh Poshte, discourages customers from paying by card. “Why should I, when I stand to lose 1 to 3 percent on every payment?”

A customer pays with a card at Sanjay Bafna’s store in Dhasai, some 100 kilometres north of Mumbai. (Photo: BloombergQuint)

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Hardly anyone in the village pays utility bills online. Even the local panchayat collects water and electricity bills in cash. “We had ordered a machine, but it never came. Now that the interest has died, we don’t want it,” said Gaikar.

Swatantryaveer Savarkar Smarak, the Mumbai-based non-government organisation that pitched the idea, admitted that the experiment didn’t succeed completely because of poor awareness and lack of infrastructure.

Its head. Ranjit Savarkar, hasn’t given up though. Cards can still be used for high-value payments, he said. Since it’s not possible to go completely cashless, he’s scaled down his target. Savarkar now wants Dhasai and neighbouring villages to make half the payments through digital modes.

(This article was originally published in BloombergQuint.)