In the world’s most sweeping currency policy change in decades, Prime Minister Narendra Modi on November 8 announced all 500 and 1000 rupee notes would be taken out of circulation, sending hundreds of thousands of Indians queuing up at banks to deposit idle cash or replace them with new notes.

Since the move invalidated 86 per cent of the total currency in circulation, an unprecedented cash crunch has ensued, prompting more and more Indians to seek succour in e-wallets.

Paytm, thought to be the market leader in India, says its new users have grown over 1,000 per cent since the announcement, with the company clocking up over 7 million transactions worth Rs1.2 billion (US$17.5 million) a day. Others say their turnover has similarly spiked in past weeks.

Alibaba, which also owns the South China Morning Post, has identified e-wallet as an important strategic segment in India and is the largest shareholder in One97 Communications, the holding company of Paytm, with investments amounting to US$680 million – about 40 per cent stake.

“Demonitsation has forced Indians to use and adopt digital money as an alternative to cash,” said Bipin Preet Singh, founder-CEO and director of MobiKwik, an e-wallet firm that has reported a “7,000 per cent increase in bank transfers”since the announcement. Mobikwik is backed by Hong Kong and Taiwan-based investors and is currently in talks with mainland Chinese investors.

Singh added that although e-wallets have been around for a while, most Indians have been avoiding them because of their natural preference for cash. But the current cash crisis having sparked fresh interest in e-wallets, Indians are converting to e-payment like never before.

Smelling blood, the main industry players have brought out the bazookas, unleashing a marketing blitz to sell the virtues of cashless transactions to Indians tired queuing up in front of banks and ATMs for new currency notes.

The market is huge and mostly untapped. With cash constituting about 98 per cent of all transactions by volume and about 68 per cent by amount in India, 12 per cent of the economy depends solely on cash. Cashless transactions, on the contrary, constitute a mere 2 per cent of the GDP.

According to 2016 World Payment Report, the average non-cash transactions by value was 10.7 per cent of all transactions in mature Asia-Pacific markets and 9.9 per cent in emerging Asia. Cashless transactions form 36 per cent of the GDP in euro zone and 24 per cent in North America, the report says.

“Demonetisation has also revealed a huge currency distribution bottleneck in India,” said Sunil Kulkarni, deputy managing director of Oxigen, a major payment solutions provider. “For instance India has less than 300,000 touch points – banks branches and ATMs – for a billion-plus people to exchange, deposit and withdraw cash.”

According to the Reserve bank of India, well over 13 million merchants or small traders in the country have no alternative but to accept cash.

E-wallets are trying hard to woo this segment as well. “We have done away with joining fees for new merchants and expect to get on board as many merchants in the next week as we did last month,” said Govind Rajan, CEO of FreeCharge.

Part of one of India’s largest e-commerce site Snapdeal, which mobilised US$500 million investments in August last year led by Alibaba, Foxconn, and Softbank, FreeCharge claims to be one of the earliest e-wallets in India. Its versatility allows users pay across all major online platforms as well as major offline stores, and has a chat-and-pay service allowing payment through a chat application.

Will it last?

Despite all the buzz over e-payments, though, the big question is, would this new spate of interest set a lasting trend in India or is it just a quick fix for a passing crisis?

“For one, consumers are typically averse to technology adoption and feel secure holding cash. Second, from the commercial perspective, millions of small merchants (mom-and-pop stores) prefer sticking to cash deals to avoid taxes,” said Pankaj Chaubey, principal analyst at PayNXT360, a research and consulting firm for digital payment platforms.

This is why the China experience is crucial for India, say e-wallet players.

“China can teach how to make a transaction easy to carry out. China has been successful in ensuring that the user experience is smooth. The widespread use of quick response (QR) codes is an example, which allows users to flash the phone to make payments,” said Rajan of FreeCharge. “Besides, India can also learn how to build an efficient e-wallet ecosystem that caters to both consumers and merchants.”

China has the world’s highest adoption rate for technology-enabled payment systems, found a Nielsen research this year. Its survey showed 86 per cent of Chinese respondents paid for online purchases during the past six months via digital payment systems compared with a global average of just 43 per cent.

E-wallet players in India are hoping that Indians will go the Chinese way.

“Experience has proved that having witnessed the convenience of digital money, users seldom return to cash. Cash has lost credibility; one can no longer be confident holding cash anymore,” said MobiKwik’s Singh.