Here's how India's war on cash is a boon for Visa and Mastercard

The world’s largest payment networks will see a surge in transactions and cardholders after the Indian government’s decision this month to remove high-denomination bills from circulation, according to analysts who cover the companies. The two networks have been pushing for this kind of change in India, where a McKinsey & Co. study found that more than 90 percent of transactions are still conducted in cash.

“Visa and Mastercard both benefit as paper currency or checks turn toward toward electronics,” said Moshe Orenbuch, an analyst at Credit Suisse Group AG who has a buy recommendation on both stocks. “When we think about where they are investing, they look toward areas where there is the potential to accelerate that transition,” he said, adding that the recent changes in India are “something they know how to move in on.”

Five-hundred rupee ($7.33) and 1,000-rupee notes ceased to be legal tender in India on Nov. 9 and must be deposited in banks by the end of the year, Prime Minister Narendra Modi said in a surprise announcement this month, sweeping away 86 percent of the total currency in circulation. The move is seen as an attempt to fulfill his election promise of curbing tax evasion and recovering illegal income, locally known as black money, stashed overseas.

Visa released a report in October that laid out a framework for accelerating digital-payment acceptance in India that it said could save the country $70 billion over the next decade. Amitabh Kant, who heads the government’s National Institute for Transforming India Aayog, said the report would help inform the discussion already underway on the topic.

“We are undertaking various measures to transition to a less-cash society,” Kant said in a letter attached to the report. “Achieving this goal would not only help reduce the size of the shadow economy in our country and the circulation of black money, but also lead to a significant increase in jobs.”

Mastercard “welcomes and supports” Modi’s decision, Porush Singh, the company’s president for South Asia, said in a statement. The prime minister’s “bold action and leadership is a critical step in positioning India to be a leader in the global cashless and digital economy movement.”

Visa, based in San Francisco, had no immediate comment