It’s been a week since the concept of demonetization has been implemented. While there may be much debate about the viability and implementation of the concept, it’s here to stay. But maybe we should look at what it implies for both financial intermediaries and for businesses, at large.
Banking Sector Reforms
It’s a great opportunity for the likes of banks and fin-tech companies in the payment space. While banks have lost out in the initial round to the likes of PayTM, Freecharge, Mobikwik and others, they have a great opportunity to drive adoption of mobile banking applications, UPI infrastructure and RuPay cards. In fact, this is a glorious chance for the government to create a push for deployment of UPI and RuPay among the financially underserved. With Jan Dhan Yojana accounts getting used and a large number of the masses having to access banks/ postal bank, it’s a chance to drive financial inclusion policies and connect it to building a money multiplying effect.
From the PSU and private bank’s perspective, this is also a great way to re-connect with the younger generation who might use an ATM when forced to, but stick with the likes of PayTM and Uber. By providing viable options and creating an ecosystem of local vendors (in the dining , travel and grocery space), banks could leverage their knowledge of the local vendors and businesses to provide greater value to both established customers and add new customers in the millennial segment. This can work much better than the Social Media and Hashtag banking efforts tried in the past to get people to connect with the bank.
Local Business Reforms
Apart from the obvious threat to jewelers, real estate developers and small time contractors who operate on a cash only basis, the policy is a huge threat to e-commerce companies and lifestyle brands. With COD being given a death strike, it’s going to be tough for e-commerce companies to push up revenues in the next quarter. However it’s a good time for e-commerce firms and retail brands to stop discounts and focus on customer experience and build lifetime customer value.
It’s a great opportunity for local vendors, be it dining / grocery/ service providers to break the hegemony of the aggregators such as Swiggy/ HouseJoy/ Big Basket. By partnering with local banks and other B2B payment players, local vendors can provide a personalized touch with a cashless experience for customers.
Political Funding Reform
With political parties losing access to black money for rallies, helicopter rides and pompous posturing, this is a great opportunity for India to establish protocols for donations to political parties. Either on the lines of PACs that are created in USA or having clear defined rules for political donations and funding. By creating transparency in the political funding process, it can be easier for us to see how the donated money is utilized.
The next step could be empowering the Lokayukta to investigate not just politicians and public officials but also how public projects are being implemented. This can be a check on impromptu projects such as the Bangalore flyover which came up alarmingly close to a set of elections and had no logic for a two fold increase in the funds allotted.