Cash remains king in India, co-exists alongside digital modes of payment

• The value of cash withdrawals at ATMs using debit cards has not only recovered from the pandemic-induced lows but has also surpassed the pre-demonetisation levels by a substantial margin.
  
• In April 2020, the value of withdrawals fell by 48.04% compared to March 2020 due to the initial wave of the pandemic.
  
• In March 2023, debit card-based ATM cash withdrawals in India experienced a significant absolute growth of 235% compared to December 2016.
  

In spite of spectacular growth in the UPI ecosystem, cash seems to hold on to its appeal, says a report by CMS Info Systems, a cash management and payment solutions firm.

As of 2021, India had $421 billion cash in circulation. That year, cash in circulation grew at 7.95% — that’s the third-highest annual growth after the United Kingdom and China.

As of 2021, 70% of account holders in India paid cash for merchant payments in 2021, the CMS India Cash Vibrancy Report 2023 said.

For context, the latest numbers for UPI transaction data which is available for FY23 shows enormous growth. According to data by NPCI, UPI payment system processed 83 billion transactions in FY23 — amounting to a massive ₹139 lakh crore.

Cash coexists alongside digital payments

In FY23, the transportation, organised retail, and BFSI sectors observed average annual increases of 36.89%, 14.44%, and 5.6% in cash collection per retail cash management (RCM) point, respectively.

Notably, the transportation sector demonstrated 1.38 times higher average cash collection per RCM point, indicating the reopening of the economy post the Covid-19 pandemic.

Furthermore, the discretionary sector witnessed a rise in monthly RCM collections during the wedding and festive seasons in October-November 2021 and May-June 2022. RCM is short for retail cash management.

“Despite the increasing adoption of digital payments in India, factors such as a significant unbanked population, cultural influences, infrastructure limitations, and slower progress in financial and digital literacy contribute to the continued relevance and vibrancy of cash. As a result, cash coexists alongside new-age technology solutions for payments and settlements,” the report said.

Cash withdrawals at ATMs recover from pandemic-induced lows

In March 2023, debit card-based ATM cash withdrawals in India experienced a significant absolute growth of 235% compared to December 2016 — which was the lowest monthly withdrawal following the demonetisation drive in November 2016.

During the initial wave of the Covid-19 pandemic, cash withdrawals witnessed a substantial decline. In April 2020, the value of withdrawals fell by 48% compared to March 2020. A similar impact was observed in May 2021 during the second wave of the pandemic, although the decline was comparatively lower at 20.6% compared to April 2021.

However, there has been a strong recovery in debit card-based ATM cash withdrawals since then. In March 2023, the value of withdrawals reached ₹2.84 lakh crore — reflecting absolute growth of 121.33% and 40.88% compared to April 2020 and May 2021, respectively.

Overall, the value of cash withdrawals at ATMs using debit cards has not only recovered from the pandemic-induced lows but has also surpassed the pre-demonetisation levels by a substantial margin, the report said.