Franchise Update Magazine Issue II, 2017 - Page 78

GROWING YOUR SYSTEM made by mobile phone in 2013 was around $24 billion, more than half the country’s GDP. As mobile phones have become more widely available, mobile payment transfers have helped reach the “unbanked.” In at least eight countries, including Congo and Zimbabwe, more people have registered mobile money accounts than traditional bank accounts. Mobile payments also are booming in China, with total transaction value top- ping Rmb38 trillion (US$5.5 trillion) in 2016, triple the previous year, according to Beijing-based iResearch. By compari- son, the U.S. mobile payments market increased by 39 percent to $112 billion last year, according to Forrester. In places like India, Indonesia, and Brazil, it’s easy to buy an Android phone for as little as $25—even less for older, secondhand (or thirdhand) refurbished phones. But there’s likely to be little onboard storage, and the pay-as-you-go data plan is too precious to waste on apps, especially those that send and receive data even when you aren’t us- ing them. Browsers are popular again, not just because typing a URL has become simpler, but also because they work harder to compensate for the nature of wireless access in emerging markets. India and “demonetization” Smartphone penetration in India was es- timated to be at 239 million in 2015 (17 percent of the population), and is expected to grow to 702 million by 2020 (55 percent of population). According to the Reserve Bank of In- dia, the country of 1.3 billion people has fewer than 23 million credit cards and just 640 million debit cards—and 88 percent of those debit cards are used only for getting cash out of ATMs. India averages just 6.7 electronic payment transactions per per- son, compared with 249 in Australia, 201 in the U.K., and 14 in China. As for those paying by card, in a country with 1.3 billion people there are only 1.2 million machines that can accept them. On November 8, 2016, Prime Minis- ter Narendra Modi went on TV at 8 p.m. and, in an unscheduled national address, announced that “the 500 and 1,000 cur- rency notes presently in use will no longer be legal tender from midnight tonight.” (The notes were equal to about US$7.50 and US$15.) The abrupt move left Indians short of ready cash. I was in India the first week of December and we were unable to 76 Franchiseupdate ISS U E II, 2 0 1 7 get small bills anywhere to tip drivers, etc. There were very long lines at ATMs and a person was able to withdraw only a few thousand rupees at a time. Before this jolt, India was a 90 percent cash economy. Homes and even large buildings were paid for in cash—not cards, cash money. The government wanted to change the cash economy so that corrup- tion would decrease and Indians would begin to pay taxes (6 percent of Indians paid taxes last year; one result is very poor infrastructure). You had just a few weeks to take your 500 and 1,000 rupee notes to the bank to exchange them for new bills or your old money would be worthless. Unable to pay for daily transactions in cash, millions of Indians have now gone digital, as have firms and small traders worried about a huge loss of business. Moolchand Parantha is just one example. The famous street food stall in New Delhi had only ever accepted cash for its Indian breads. But it signed up for Paytm, an In- dian mobile wallet app, just hours after Modi dropped his 8 p.m. bombshell. Now about 20 percent of its daily takings come from the app. Local perspective I asked Rajeev Manchanda, founder direc- tor at Inventure India, for his thoughts on India’s move to shift from a cash-based economy. Here’s his response: Payments-related technological innova- tions are changing the way Indian consumers pay. The recent demonetization drive by the government gave impetus to adoption of e-wallets like Paytm overnight. One of the greatest benefits of demonetization has been the fillip it has given to digital transactions: the cash-to-cards ratio saw a complete reversal. This quick adoption of digital payment methods has played out across the organized retail sector. In the major cities, it would have tak- en people from different socioeconomic classifications three to five years to adopt digital payment methods. Demonetization fast-tracked the cash-to-digital transfor- mation to a matter of months. 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