Credit card use increases post Demonetisation of Rs 500 and Rs 1,000 notes

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On the 8th of November, 2016, the government announced that the Rs 500 and the Rs 1,000 notes would no longer be accepted as legal tender. Basically these two types of notes had been invalidated. Following the announcement there were numerous changes that took place in the Indian economy and one of them was the increased use of cashless transactions. Companies like Innoviti Payment Solutions, which process these transactions, have reported that they have been seeing an increase in the use of credit cards for amounts that are less than Rs 1,000.

What does this mean?
The obvious factor that has led to such a sharp increase would be the lack of cash since the two notes formed about 80% of the notes in circulation in India. With long queues at the banks and tight limits on ATM and withdrawals from the bank there isn’t enough currency to go around. But the effect of this factor is also two-pronged. One the one hand people didn’t have access to cash to for payments for daily necessities and on the other hand vendors, fearing a drop in income from the lack of cash scrambled to get the PoS (Point of Sale) machines to enable payments via cards. The effect was that the aforementioned increase in credit card use was calculated to be up to 40%.

While it is a good sign that cashless transactions are being adopted by India, a country where the economy is still predominantly cash based, there could be a hidden concern. An increased use of 40% in the use of credit cards could lead to a subsequent increase in credit card debt as well.

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