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How Demonetisation will Boost Digital Payments & Benefit MSMEs

2 Dec 2016

Demonetisation is the one word on everyone’s lips, and to say it has ruled our mindspace as a country ever since that decisive moment on November 8, would be no understatement. Cash has become the talking point among all circles in the country, from businesses, workspaces to the unorganised sector that comprises vendors, domestic workers etc. The micro, small and medium scale enterprise segment (MSME) is one of the largest in the country. There are over 3.6 crore MSMEs that provide employment to over 8.6 crore people in the country, as per the government’s statistics. So, how does this large segment comprising such a huge chunk of the country’s workforce cope with demonetisation?

 The answer obviously lies in going digital. In fact, one of the biggest positives to come out of India’s demonetisation exercise is the realisation that the future is going to be digital and cashless. This move should be seen by MSMEs as a step ahead in their march towards a cashless and digital future. The size of digital payments market is pitted to touch nearly 15 per cent of the GDP, a whopping $500 billion, come 2020.

 How will demonetisation boost a digital future? The answer lies in the role that payment solutions providers or PSPs are already playing, and will play in both the short-term and long-term future. Several PSPs have tied up with MSMEs to help the latter transition to an online world that involves lesser paperwork, faster cashless transactions and greater efficiency.

 What would going digital mean in a post-demonetisation world?

 Getting digital would also mean using channels like e-wallets, apps, Unified Payments Interface (UPI) rolled out by the government, wire transfers, RuPay payments (card) and other electronic systems for payments. Transaction costs will fall and excellent user experience is guaranteed.

 MSMEs could benefit from the government’s UPI, which is a payments interface that was rolled out in August 2016. The ease of this interface is such that you can seamlessly connect your various bank accounts, and allow for easy money transfers to and from connected accounts. The money doesn’t go into a wallet, instead it is in your bank account, and you can continue to withdraw cash, write out cheques or use debit cards. Any customer/user who has an Aadhaar card or a mobile/smartphone can carry out transactions online seamlessly.

 Demonetisation will help MSMEs to finally stop relying on private finance options and seek transparent finance facilities. Micro, small and medium firms will do well to boost their credit worthiness and gain access to digital funding for their various needs. Using a digital financing and banking method will ensure that there is transparency in an MSME’s business operations and leave an audit footprint that is clean. Credit-worthiness can then be used for greater equity and over-draft limits. The fintech lending space will do well, and this in turn, will augur well for MSMEs. The number of data points to hold onto post-demonetisation will boost the process of underwriting business loans.

 Creating a level-playing platform

In essence, demonetisation will create a level field for all MSME players, as more PSPs, wallet systems and online transfer interfaces will shape up, and make access to finance quicker and transparent. It is typically late or delayed payments that harm small, micro or medium businesses, but with digital systems for payments, MSMEs can receive payments quicker, and also generate invoices and alerts faster. 

All in all, while it may seem like a crunch in the short-term, in the long-term, a move towards a cashless economy will only boost MSMEs for speedy disbursal and repayment of loans, and transactions.

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