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India clings to cash, even as tech firms push digital money

Patym signs at a shop in Aligarh, India, in December 2017. India’s reluctance to give up paper money poses challenges for the firms that are vying to offer electronic payments, including local players like Paytm, and American tech companies. Atul Loke/The New York Times
Patym signs at a shop in Aligarh, India, in December 2017. India’s reluctance to give up paper money poses challenges for the firms that are vying to offer electronic payments, including local players like Paytm, and American tech companies. Atul Loke/The New York Times

India clings to cash, even as tech firms push digital money

by Vindu Goel and Suhasini Raj

ALIGARH, India — Signs and banners for Paytm, India’s biggest digital payments service, festoon Pooran Singh’s cellphone shop, where people drop in all day to add data or talk time to their prepaid phones.

Yet few of these people actually use Paytm at the store, which straddles two dusty streets in this sleepy north Indian city in which tractors jostle with cows for space on the narrow roads.

“People recharge in cash,” Singh said, after a young man handed him 20 rupees (about 32 cents) to top up his mother’s phone.

The scene in Singh’s shop underscores a persistent reality of India’s economy: People prefer cash for most routine transactions, despite intensive efforts by the government and global technology companies to lure them onto digital platforms.

India’s reluctance to give up paper money poses challenges for the firms that are vying to offer electronic payments, including local players like Paytm, which has received financing from the Chinese e-commerce giant Alibaba, and American tech companies, like Facebook, Google and PayPal.

“Cash is convenient,” said Caesar Sengupta, who oversees Google’s products for emerging markets. “It’s anonymous. You can use it everywhere.”

Even so, tech companies see India’s low rate of digital payments as an opportunity. They all cite China, where in just a few years, mobile payments became so popular that it is now difficult to get through the day with cash alone.

“In India, we’re going to see a similar rise,” Sengupta said in November, shortly after Google introduced Tez, a payments app for India.

One reason for tech companies’ optimism is that digital payments in India have increased during the past year. The value of transactions using digital wallets, the business on which Paytm was built, rose 64 percent from December 2016 to December 2017. Transactions made with the Unified Payments Interface, a government-backed technology used by Tez and many other mobile apps, went from virtually nothing a year ago to $2.1 billion last month.

Leading India’s budding payments shift are Paytm and its chief executive, Vijay Shekhar Sharma.

Sharma founded the company seven years ago as a way for cellphone users to pay their bills online. It is now India’s largest consumer-payments app, with 302 million account holders and 90 million active users.

Customers can use it to buy goods at physical stores, book movie or airline tickets, send money to each other or order items from Paytm’s online mall. A transaction requires a quick scan of a merchant’s bar code or a few taps on a smartphone, rivalling Apple Pay or Venmo in simplicity.

Sharma aspires to put his company at the centre of Indians’ financial lives, and he has pledged to spend $1.9 billion over the next two years toward that goal.

“Our truest ambition is for Paytm to be known as the bank for this new-age, digital, mobile world,” he said in an interview at the company’s headquarters in Noida, just outside Delhi.

Merchants like Singh are crucial to Paytm’s plans.

The company pays Singh a bounty of 20 rupees for each of the eight or so customers he signs up each month, with additional payments if a newcomer continues to use the service. He earns an additional 18 rupees each time he verifies the identity of an existing Paytm user with his fingerprint scanner, a new requirement imposed by the government on all digital wallet companies.

Singh’s phone shop has also become a virtual ATM for Paytm’s nascent banking division, which plans to turn 100,000 shops across India into mini-branches where customers can deposit and withdraw cash, get a loan and buy insurance policies.

“We really want to reach the underserved, underbanked customer,” said Renu Satti, who leads the Paytm bank.

Paytm’s strategy dovetails with the goals of India’s central government. Narendra Modi, who became prime minister in 2014, has sought to recast his country as “digital India,” and his government has heavily promoted cashless transactions.

In November 2016, Modi suddenly banned most of India’s currency. The edict forced people to exchange their rupees for new notes at banks, setting off a short-term cash crunch and prompting many Indians to consider digital options.

Still, the country’s cash economy has endured.

Only one-third of India’s 1.3 billion residents have access to the internet. Of those who are able to go online, just 14 percent make mobile payments at least once a week, according to Kantar TNS, a research firm based in London.

Consumer trust is a big issue. Ghani Khan, who was finishing a snack with his wife at Aligarh’s lone McDonald’s, said that someone had once stolen 3,300 rupees, what would be about $52 now, from his Paytm account.

“People feel scared to use these apps,” Khan said. Although he got his money back, he now avoids payment apps, preferring to use cash or his debit card. (Paytm says that most such problems are related to thieves who call users and persuade them to turn over sensitive account data.)

Merchants also worry that officials are promoting digital transactions as a way to better track commerce — and collect more taxes.

Anusheel Shrivastava, a top Kantar executive in India, said his firm found that 6 percent of mobile phone users made at least one digital transaction a day in 2017, up from 2 percent in 2016.

That number is likely to increase further when WhatsApp, the messaging service owned by Facebook, adds payments to its service in the next few months.

Paytm stands out in part because of the 10,000 employees that it has in the field to help new businesses use the service, educate existing ones about new features and troubleshoot problems. There are about 6 million merchants in its network, from giant multinationals like Uber to tiny neighbourhood sweet shops.

“We have to train them, we have to retrain them, we have to visit them,” said Yashwin Gupta, who oversees a team of 65 Paytm representatives in the region that includes Aligarh. “That’s our daily job.”

The job is getting easier now that Paytm is better known.

Last month, Mukesh Gupta sought Paytm’s help in setting up the service for his toy shop here after 10 to 20 percent of his customers asked to pay with Paytm. “People like to spend money on more than just needs,” he said.

Aligarh, with 1.2 million residents, is a barometer for Paytm’s progress because it is a midsize city, and because Sharma, the company’s chief executive, grew up nearby.

On one visit home, he said, he met a Hindi-speaking merchant who did not know how to get money out of Paytm and into his bank.

The problem? Paytm’s app for merchants was in English, and the icons were not clear enough for those who did not speak the language. Paytm soon developed a Hindi version.

In recent months, skeptics have questioned whether Paytm can maintain its growth. The new regulations requiring customer verification could turn off some customers. The company is also spending heavily on incentives, such as giving cash back on certain purchases and free credit-card processing for merchants.

Sharma said such expenses were necessary investments.

“The only way to grow digital transactions is to make them free,” he said. “This is a culturally different country being built.”


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