In a surprise move, Indian Prime Minister Narendra Modi on Tuesday announced that banknotes of 500 and 1,000 rupee denominations would be withdrawn from circulation at midnight, as the government cracks its whip against corruption and counterfeit currency.
500 and 1,000 rupee notes are the highest denominations available for the Indian currency.
Reuters reported that even the head of the country’s largest government-backed bank had not had much time to act on the government’s decision
“We have handled demonetisation earlier and will do so again. Tomorrow banks will remain closed in order to withdraw these notes from counters and ATMs. We will strive to restock ATMs at the earliest and make them operational,” chairman Arundhati Bhattacharya told the news wire late on Tuesday.
The government did not explain the reason decision being announced so suddenly, but the most plausible theory is that since the move is designed to lock out money that is unaccounted for or may have been gotten illegally, a heads-up about the change would have rendered the entire process fruitless.
But as one can imagine, the result of the shock announcement was chaos on the streets. Cash machines were either closed or seeing long lines, and the initial few hours resulted in general panic as citizens scurried online for details and debates.
However, unexpected winners emerged from the cacophony – Indian startups. Top #startup founders were quick to voice their support for the move, as this naturally means Indians will be nudged towards online payments and cashless transactions.
Why the cheer? Cash on delivery has long been a pain point for startups in the country. Because India is a cash economy, everyone including Amazon and Uber toed the line and introduced the practice of accepting cash payments to service the Indian customer.
However, offline payments take a longer time to reflect on the books, and are fraught with problems. Accepting cash requires hiring staff to manage it, and for ecommerce companies, cash also leads to a higher return rate (you pay only after your package is delivered, so it is easier to cancel an order, not accept it, cancel a cab ride without fear of penalty, etc).
As more Indians are forced to make cashless transactions, it will get easier for startups to convince them to pay online for their services.
Fintech startups lost no time in driving home that point.