Macronomics: How Much Does India Use Cards Versus Cash? A Data Summary

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How much of India’s Liquid Wealth is in “Cash”?

We all know that the demonetization drive has impacted India but let’s take a look at some statistics today. How much of the Indian economy is cash? The real answer isn’t actually known. So let’s move to a different vantage point. Let’s calculate India’s liquid wealth, which is the amount of money that’s “accessible” to us.

The liquid money you have = the currency notes you own + whatever’s in your bank account. For the whole economy, we can take the total number of currency notes that are printed, and add the total amount in all bank accounts, to find the total liquid wealth in the country. What portion is in cash?

Note that: 1 Billion = 100,00,00,000 = 100 Crore

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  • In the 1950s you can see that more than 60% of wealth was Cash!
  • This fell to around 30% in the bank nationalization drive in the 70s.
  • In the late 90s, we saw this number below 20%.
  • Now, cash is only 13.75% of all liquid wealth. That’s an achievement by itself.
  • Cash has grown at about 9.5% a year since 2011, which is approximately how much the overall money supply has grown in the last five years.

How Big is Card Usage?

Card transactions – ATM and other transactions included – are about Rs. 2,624 billion (2.62 lakh crores) for September 2016. We look at this figure as a percentage of total money supply (currency + amount in banks etc) which is called “Broad Money Supply” or M3. That’s because our money supply has been growing fast, and using absolute comparisons is misleading.

As a percentage of M3, Card usage in rupees accounted for about 2.1% in September 2016. This is not much more than in 2011, when it was 1.8% of M3.

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While Credit Cards accounted for 6% of the transactions made through cards in Apr-11, the spending has increased by 50% and Credit Cards now account for 9.3% of card transactions.

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And there are a lot more debit cards than credit cards! In Sep 2016, there were 728 million debit cards versus only 27 million credit cards in the country.

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Cards: Are Indians Using Them For Transactions? Or Just To Draw Cash?

Debit cards are just cash-drawing systems, it turns out. 94% of all transactions of debit cards – a whopping Rs. 2.22 trillion – are just on ATMs. The rest, a mere 16,000 cr. (160 bn) is on POS (where you swipe the card). This reverses for Credit Card wherein every Rs. 99/- of every Rs. 100/- is spent at POS machines.

POS : Point of Sale.

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If you remove ATM usage, Credit cards continue to beat Debit cards in terms of value transacted. People just don’t use their debit cards enough (for transactions), it seems.

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In Apr-11, out of Rs. 100, while only Rs. 97/- was being spent via ATM, today it has fallen to Rs. 93/-. The value has doubled from Rs. 1,061 B to Rs. 2,220 B – a 200% growth though value of POS transaction have increased more than 4 times from Rs. 37.06 B to Rs. 159.33 B in a span of 5.5 years.

We have seen a major increase in access points. The number of ATMs has increased from 0.75 lakh ATMs in Apr-11 to 2.18 lakh ATMs i.e. a 300% growth. POS machines are up from 5.95 lakh POS to 14.96 lakh POS i.e. over 250% growth in 66 months of 5.5 years.

This means the Indian economy witnesses an addition of 72 ATMs to its network on a daily basis while 455 POS are setup every day – a staggering 527 points are created for the customer to either spend the money or withdraw the cash.

What are Wallets Doing?

Even with digitization, pre-paid instruments (such as wallets) account for less than 0.5% of the Broad Money Market at Rs. 56.28 B in Sep-2016.  Pre-Paid instrument based spending has increased over 10 times from Rs. 4.89 B in Apr-11 to Rs. 56.28 B in Sep-16.

m-Wallet, PPI Cards and Paper Vouchers which make up the Pre-Paid Instruments have all witnessed a growth of over 5 times.

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Our View: Card Usage Is Still In The Early Stages

While the demonetization drive will push some users to swipe cards, the majority of use at ATMs is for drawing cash. So it appears that people prefer to use the ATM, take cash, and transact. The behavioral change required for them to use the card directly may be difficult to push through forcibly, but some of it will happen and the statistics will change dramatically after November 2016.

Credit cards are just as popular to use as debit cards, even if they are far less prevalent. The reason: people just don’t use their debit cards for transactions, apparently.

From the perspective of usage: In September 2016, only Rs. 40,000 cr. (400 billion) was used to transact using cards in India (non-ATM). In comparison, cheques of 6200 billion were used, and NEFT accounted for over 9000 billion worth transactions. Even in the non-cash system, cards are a very tiny part of overall transactions.

Cards seem to be used only to draw cash – by a factor of about 5 times more than using cards for a transaction at a selling point.

Finally, the data tells us approximately how much cash is used. If we draw about 2,200 billion of cash every month (2.2 lakh crores) from ATMs using cards, and we add a fair amount more from people who just use cash stored at home (say another 1 lakh crores, or 1000 billion), that’s 3,200 billion in cash used every month.

The banning of the Rs. 500/1000 notes took out over 14,000 billion of cash from the system. We have managed to replace only about 1,000 billion of it with new notes so far. No wonder the system is this stressed; and expect that we will take at least three months to come back to normal.