The document discusses how India's economy and consumer habits will change in the aftermath of India's demonetization of high-value currency notes in November 2016. It predicts that digital payments will surge in use, more Indians will enter the formal banking system, and access to credit will expand. Financial inclusion will deepen as banks work to serve the needs of newly-banked customers, but security concerns around digital frauds will also rise. Marketing strategies will need to account for uneven digital infrastructure and address both urban and rural consumers.

1. 2017 & BEYOND
REIMAGINING
DEMONETIZED
INDIA
Latika Tandon
Lead-BFSI Practice
latika.tandon@imrbint.com

2. Every country in its history, experiences a few
cataclysmic shifts which redefine 'the normal'.
Though the jury is still not out on the long term impact
of PM Modi's decision to withdraw Rs.1,000 and Rs.500
notes from circulation, it can be said with certitude
that post November 9th, the operating model of India
and its people has irreversibly changed. Two months
gone, about 44% of the removed currency value
replaced and nearly 60 RBI circulars later, the frenzy
seems to have abated, though uncertainty still
persists.
The banks are flush with liquidity, the government has
been pushing for digital payments,there is reduction in
inflation; but consumption has fallen, supply chains
have been disrupted across industries and many
working in the micro and small enterprises, for now
have losttheirjobs.So where does India go from here?
The marketers are trying to reimagine India and
anticipate what the new normal will mean for its
consumers.What will the consumers buy more of,what
will they do without, where will they buy from, how will
they pay, what will be the new habits they adopt, and
what will they expect from their brands? This thought
note delineates our forecast of things to come and
trends to watch out for in2017 and beyond.
REIMAGINING
DEMONETIZED
INDIA
2017 & BEYOND
REIMAGINING DEMONETIZED INDIA –2017 AND BEYOND

3. REIMAGINING DEMONETIZED INDIA –2017 AND BEYOND

4. REIMAGINING DEMONETIZED INDIA –2017 AND BEYOND
There is no official data on the size of the
parallel economy in India,but it is variously
estimated at a quarter of the GDP to 75
percent of the GDP. The common man has
always resented these piles of cash in the
hands of few and schadenfreude was their
first level reaction to demonetization,
overriding their own pain in coping with it.
Urban Indians give resounding thumbs up
to the overall impact of demonetization -
73% of them believe that this
`transformative' move will be good for the
country, with Tier 2 town consumers more
upbeat than their metro and smaller town
counterparts. This approval is grounded in
the conviction that demonetization will
flush the system clean of unaccounted
money, reduce corruption, lead to lower
inflation, and eventually bring into the
system the thriving parallel cash economy.
The perceived impact of demonetization
on the economy and self is less positive,
amongst the same respondents, as
uncertainty around the cash availability
and the disruption in lives and livelihood,
rears its head.
BEGINNING OF DECLINE OF
THE PARALLEL ECONOMY IN INDIA
of them believe that this
`transformative' move will be
good for the country
73%
Source: IMRB Consumer Survey on Demonetisation
COUNTRY ECONOMY MYSELF
73
20
5
52
15
14
45
27
1
Positive
negative
neutral

5. REIMAGINING DEMONETIZED INDIA –2017 AND BEYOND
THERE IS A MUSICAL UNISON IN THE VOICE OF CUSTOMER AND THE RETAILERS,TO USE DIGITAL
PAYMENTSASAMODE,GOING FORWARD
Mobile e wallets like paytm , mobikwik etc.
Online/Internet Banking
Debit Card
• Two out of three customers are planning
to use digital payments in urban India,
with PoS payments being the most preferred.
The increasing penchant for the Indian
consumer to buy online has opened the
Indianwallet to include digital modes over the
last few years ; this willingness to making non
cash payments will be furthered in the future
by the ongoing ‘Digital India’ narrative ,
spurring e-commerce and organized retail.
This could see Indians buying bigger SKUs of
essentials and staples.
Credit Card
Net of Digital Payments
Cash90 95
38 62
9 26
31 54
13 28
6 22
Present
Future
Source: IMRB Consumer Survey on Demonetisation

6. • Increasing number of the food plates in
India will be digitally paid for – The
consumers intended incidence for digital
• The ubiquitous retailer network in the
country ready to change with the times - As
per a Reserve Bank of India’s (RBI) report
pre-demonetization, usage of debit cards
at ATMs still accounted for 88% of the total
volume and around 94% of the total value of
debit card transactions, while transactions
at point of sale (PoS) terminals account for
only 12% of volume and 6% of value of
transactions. Pre-demonetization, over
90% of the outlets did not have a medium
to collect payments electronically.
payments is highest for purchase of
groceries or consumption of food not
prepared in the home kitchen
REIMAGINING DEMONETIZED INDIA –2017 AND BEYOND
44
31 31
54 54
28
17
28
68
44
50
53
62
41
28
27
Making
payment at
Kirana
Dining Outside Ordering Food Purchase of
Apparels
Paying Utility Bill Cab Booking Flight Booking Booking Movie
tickets
Present Future
• But things are set to change. More than
60% of retailers have expressed an
intention to accept digital payments, POS
machines and e-wallets topping the list of
preferred modes.
The number of transactions at ATM remain higher than at Point of sale terminals.
NUMBER OF
TRANSACTIONS
(mn)
444.16
263.79
29.4
448.55
314.43
43.12
530.35
372.5
52.29
591.05
500.08
73.61
108.11
ATM Point of Sale Outstanding Debit cards(End of Months)
Dec'11 Dec'12 Dec'13 Dec'14 Dec'15
708
643.12

7. • Some recalibration is due in the Impulse
purchase category as it saw a steep drop in
consumption, post demonetization ( ~30%
reduction). Recovery will not be immediate
and spends will be cautious – the category
needs to consider smaller pack sizes for
individual consumption, with convenient
pricing of say Rs. 10/-. Trivia- More notes
and coins of Rs. 10/- value (5.7 billion
pieces) were disbursed to the public in new
currency than that of Rs. 20/- (3.1 billion
pieces )
• The shrinking of shadow economy, large
scale removal of cash from the market and
the dampener on the real estate sector will
have a negative impact in the medium-to-
long term particularly in the luxury goods ,
luxury cars,SUVs, gems, jewellery, gold and
high-end branded products , as they were
funded by the cash gains made in the real
estate deals. Pre demonetization, 60% of
purchases of white goods and television in
India were in cash, balance was through
credit and debit cards and consumer
finance. Half of the sales of two wheeler
scooters were transacted through cash,
especially in smaller cities. In case of car
sales, especially in the rural areas, down
payments were made in cash, mostly
funded by income from land transactions.
REIMAGINING DEMONETIZED INDIA –2017 AND BEYOND
i will use more of
POS machine for
accepting customer
payment
I will pay salary to
my Employee
through Cheque
rather than cash
I will use mobile/
digital wallet like
paytm for accepting
payments
I will pay salary to
my Employee
through bank
transfer like
RTGS/NEFT/IMPS
Will make majority
of my payment to
suppliers through
Demand Draft/
Cheque
Partner with Online
Websites or
Applications to
accept payment
from customers
Will make majority
of my payments
through bank
transfer like
RTGS/NEFT/IMPS
There will be no
change in my future
transactions
Source: IMRB Consumer survey on Demonetisation
61%
13%
54%
7%
23%
3%
7%
18%
Online
Transfer

8. REIMAGINING DEMONETIZED INDIA –2017 AND BEYOND
• While India boasted of near universal bank
account ownership (at a household level),
post the Jan Dhan drive , the inclusion was
not considered to be real. More than 50% of
these accounts had zero balance and zero
t r a n s a c t i o n s t o b o a s t o f… . b u t
demonetization force activated these
accounts in one swoop. Funds flowed in to
these accounts overnight, with total
deposits in Jan Dhan accounts amounting
to Rs. 64,252.15 crore (Dec 30, 2016). Global
studies suggest that these new customers
are here to stay, as people tend to continue
using banking services once they have
crossed overto the formal financial system.
• The financial lexicon of the common
Indian has expanded - Conversations on the
road in the last few months suggest that
there is a sudden surge in the financial
terms used and understood across the
country and consumer profiles. PayTM has
become the 'Xerox' of digital payments and
is being used more as a verb than as a noun.
Terms like UPI and NEFT/IMPS are being
used in common parlance. This augurs well
for the country as financial literacy is
considered to be the foundation stone of
financial capability
• Digital transactions+ have surged in the
range of 400-1,000 per cent since
November 8, not including transactions
done through Master and Visa cards.
Further,volume of transactions using Rupay
card increased from 3.85 lakh per day to 16
lakh per day and value from Rs. 39.17 crore
to Rs. 236 crore, UPI transactions volume
were up from 3721 per day to 48,000 per day
and value Rs.1.93 crore to Rs.15 crore, in the
month of December2016.
• Going forward, banks will become an
integral part of life for increasing number of
Indians, as they deposit, transact and
withdraw from their accounts. The flag
bearers of the banking system to go beyond
the universal banks to include payment
banks, small finance banks and their
facilitators being Common service centers
in rural areas and E-Mitras in urban areas
(currently only in Rajasthan).
REAL FINANCIAL
INCLUSION, FINALLY

9. REIMAGINING DEMONETIZED INDIA –2017 AND BEYOND
credit. The estimated total finance
requirement of MSME sector in India stands
at INR 32.5 trillion ($650 billion), against
the total outstanding loan of the banking
system to MSME sector at around11.1 trillion
rupees in20.6 million loan accounts.
• Increased usage of cards and digital
modes of payments are creating a credit
history for most Indians,who were so far not
in the ambit.Availability of credit scores will
make more Indians eligible for credit from
the formal financial system, both in their
individual and business capacities.
• The banks in India are flush with funds,as
Rs.13 lakh crore plus came into the system
in the form of high denomination currency,
boosting the bank balance sheets with low
cost deposits. Increased digital payments
will ensure liquidity remains in the banking
system, enhancing the available funds for
lending.
• Yawning credit gap in India means
formal credit system has vast potential for
growth.- Studies suggests that close to 90
per cent of MSMEs (~ 51 million of them in
India) and more than 50% of households
are dependent on informal sources for
INDIA WILL CREATE
ITS OWN CREDIT BUBBLE

10. REIMAGINING DEMONETIZED INDIA –2017 AND BEYOND
• As large sets of new and first-time
customers enter the financial system, new
codes of customer service will have to be
d e v e l o p e d . E x p e c t a t i o n s a n d
apprehensions of these new customers will
be around familiarity,empathy,simplicity
and handholding, versus the established
codes of convenience, individualism and
pricing.
• Vanilla financial products with simple
and transparent features will co-exist in
the service provider repertoire along with
the complex offerings and financial
education will be mandatory.
• While cash will continue to be the king,
the untenable trust unto cash has been
e ro d e d . G ra d u a l b u t d e fi n i te
monetization of assets will be seen , with
first purchase of financial products like
Insurance and mutual funds
CHANGING CODES
OF FINANCIAL SERVICES
• As more tax payers enter the tax base, tax
saving financial instruments will find favor.
It is reckoned that a significant proportion
of Rs.13 lakh crore that has been deposited
in the banks, is undisclosed income, which
has to be taxed . The new economy, post
demonetization, offers the 'Hobson Choice'
to the traders; they have a choice of
remodeling their business as a tax paying
enterprise or shut shop, widening of the tax
base of the country. As the country gains
more tax payers, subscriptions to financial
products like Insurance, PPF and Mutual
funds will increase.
• The monopoly of universal banks ends, as
more decentralized,niche finance providers
like small finance banks, payment banks.
CSCs, banking correspondents with closer
last mile connectivity with the new
consumer segments will take center stage.
CASH
HANDLING
Lower than before
Same as before58
42

11. REIMAGINING DEMONETIZED INDIA –2017 AND BEYOND
• High decibel marketing initiatives will be
the order in 2017, to build early leadership
positions amidst the chaos. PayTM's
communication blitzkrieg which intensified
post demonetization has ensured it of
highest mindshare in the mobile wallet
space, getting it new customers by the
truckloads from across 300 plus districts
and over 1000 cities. But this will be only a
part ofthe story…
• Disruptive pace of pan India digital
payments with asymmetric infrastructure,
will have to be serviced by location
appropriate technology variants. Financial
service brands will introduce platforms and
apps to cope with patchy or no net
connectivity in semi urban and rural, which
can be used on feature phones as well.
• Cyber Paranoia cannot be ignored- the
fear of Digital frauds looms large as the
digital payments gain favour with newly
initiated consumers. With the surge in
digital transactions via e-wallets and other
online payment gateways, mobile frauds
are expected to grow to 60-65% in the
country by 2017 and security standards will
be the watchword
THE 3S MANTRA
FOR FINANCIAL BRANDS