Introduction:

 On November 8th 2016, the Prime Minister announced that 1.34 billion of its two
high value currency notes (500 and 1000 rupees) would be demonetized.
 Originally acted as a deterrent to terrorism, corruption and drug peddling.
 Effectively, India pulled out 86% of its cash in an economy that was 95% cash reliant.
 When new currencies of 500 and 2000 rupees were introduced, many ATM’s were
unable to process the redemption and subsequently ran out of cash.
 As the Indian economy was now facing cash shortages, it had to rely on the digital
economy grid.
 In May 2016 Reliance Jio Infocomm Limited launched a mobile wallet service along
with 4G services named ‘Jiomoney’.
 With this, they were able to make utility bills, insurance and offline payments.
 M wallet had the capacity to store payment methods.
 Jio received a payments back license in 2015 and acquired a range of
telecommunication radio waves.

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E wallet market:
 In 2016, India was the second most populous country with an approximate

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population of around 1.34 billion people.
 M wallet popular amongst youth and had already surpassed mobile banking in

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volume.
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 Expected to grow at a much faster pace than the rest of the world.

Nature of E wallets:
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 An M wallet was a type of payment service which individuals and businesses can
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send and receive payments using a mobile device.

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 Closed wallet was limited to buying goods and services or receiving refunds from the
same company. Cash withdrawals were also not allowed on closed wallets. An
example is Jabong.com.
 Semi closed wallet can have funds loaded on and used to make payments at multiple
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places but like closed wallets, cash withdrawals were not permitted. Some examples
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were Jiomoney and Paytm.

 Open wallet can have funds loaded on to make purchases and also cash withdrawals
were permitted. An example of this was masterpass which used mastercard to make
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payments or withdraw cash.

 Semi open wallet allowed transactions to happen with merchants who had a contract
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with the company issuing the wallet. Users were not permitted to withdraw money.
An example of this was Visa gift cards.
 Four different type of digital wallets classified (Bank, telecommunications, device
resident and technology).

Payment transactions through semi closed M wallets:

 During the registration process, it was possible to sign up as a customer or a
merchant.
 RBI set the monthly M wallet transaction cap at 20,000 rupees but was possible to be
raised with identification.

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  Money would be placed in an escrow account to stop the misuse of funds by the
service provider.
 Push method was when the funds were transferred after scanning a QR code.
 Pull method was when a unique password was received which was then used to pull
funds out.

Competitors of Jiomoney:
 Mobiquik was a semi closed M wallet which allowed users to top up their account
with various debit and credit cards.
 Paytm was also a semi closed wallet and was the biggest brand name.

Demonetization:
 Served as an unexpected boom for India’s leading M wallet providors.
 Mukesh Ambani who was chairman of Reliance industries stated that digitally
enabled transactions will boost economic growth and bring unprecedented
transparency to India’s monetary system.

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Challenges:

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 The presence of many competitors in the market with the RBI granting licenses to
many different service providers.

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 Was difficult to maintain and attract new customers for a long period, hindering long
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term growth.
 Lack of interoperability.
 Gaps in infrastructure (Poor and failed connectivity) where weak connections
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resulted in lost transactions.

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 RBI required service providers to have strict document controls such as KYC
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requirements preventing money laundering and funding for terrorism.

 Large amounts of the population in rural areas were uncomfortable with technology
and did not have access to this service.
 72.2% of the population lived in villages with limited access to 4G (Many using 2G
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that were incapable of transactions).

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1. What was demonetization? What is an M wallet?

2. Discuss the paradigm shift towards M wallet transactions in India post demonetization.
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3. Do you think demonetization was a net positive for the Indian economy? Why or why not?
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