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The Day That Changed Our Money : PART 2

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It’s been three weeks since the dramatic announcement by Prime Minister Narendra Modi to demonetise all Rs. 500 and Rs. 1,000 notes. This was accompanied by limits on cash withdrawals. A day after the announcement of November 8, I wrote how this would change our approach to money forever. The past three weeks have seen enormous pain for most citizens. It will remain painful for a while. But, going through the views of thousands of people I am connected to, my conversations with people and my own experience, I maintain that life is going to change for the better. Soon.

Here are five ways in which demonetisation will change our money forever.

1) MOBILE IS YOUR WALLET

It’s a trend I first wrote about 14 years ago! Most cellular phone companies back then were talking about it and preparing for it. Not surprisingly, it seemed like a long shot. And long shot it did turn out to be. But, 14 years later, it is now a reality. While the e-wallet culture has been around past two-three years with some companies jumping into the fray, we will only now see the real impact of it. With people left with no choice, they will gravitate towards using their mobile phones to transact. While it is true we have less than 30 crore bank accounts, it is also true we have over 100 crore mobile phone connections. Almost all leading banks have developed their own version of mobile wallets and with several payment banks set to launch their businesses early next year and mobile phone companies like Airtel and Jio aggressively pushing their mobile wallets as well, the mobile phone is set to become every Indian’s wallet. The mega education campaign by mobile wallet companies and the Government post November 8, will play a major role in people understanding and embracing this technology.

2) While almost all banks have been offering digital or online banking for a while now, they have not really been able to segregate those who still come to bank branches and those who don’t. The rate they offer to customers is the same whether you came through the offline mode (higher cost for a bank) or online (far lower cost and increasingly popular with the youth). Payment banks will come with no legacy. Airtel, has, in fact, launched its payment bank with a 7.25% interest on the savings account. This is over 2% more than what most banks offer. Others will follow. This will be one more reason for people to move to more digital friendly banks and fierce competition will force banks to pass on cost savings to customers through better rates on their deposits. Demonetisation will drive this push as citizens are now forced to look at digital options as we move away from a cash system of transacting.

3) I have read a lot of commentary on how the uneducated and poor will not be able to deal with the cash crisis. How wrong we all are! They are, in fact, the fastest to adapt to change as the mobile revolution has shown. The pace at which vegetable vendors, pan shops, cycle and auto rickshaws, house helps, drivers, traders, farmers are moving toward mobile wallets is fascinating. I have no doubt that in the months and years to come they will gravitate way sooner than we expect to a cashless mode of transaction.

4) Demonetisation has had a huge unintended consequence. With cash hard to come by, most of us have been forced to cut back on our expenses. The tendency to splurge is gone. We have all become more careful with our money since we have lesser of it available to us! Most people I have spoken to say they never thought they could get by in life by saving more. Ask yourself this question; are you spending more cautiously today than you did before November 8? If the answer is yes, then I suggest you stay that way! Spend on what you need. Money
saved is money earned.

5) Demonetisation will lead to lower rates of interest on your fixed deposits. Further rate cuts are expected in the coming weeks and months. We are talking of near 6% interest rates on fixed deposits! Needless to say, interest rates on other Government schemes will also go down. Real estate is in a bad shape and will only get worse. Gold is hit, too. Are you thinking of finally investing? I have seen more and more people now actually veering towards investing in equities and bonds through mutual funds to earn better returns by reaping the benefits of the India growth story over the next decade and more. Demonetisation may finally push us away from a nation of savers to a nation of investors! This itself could transform our country to a level none of us can even imagine.

Disclaimer: The views and opinions expressed in this article are for informational purposes only. The authors and publishers are not responsible or liable in any manner for any actions you might take relying on the contents of this article.

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