Cash-crazy India is finally learning to love epayment, thanks to startups

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In India, cash is king.

The country has about 20 million credit cards for a population of over a billion, and fewer still trust online payments, much to the initial dismay of startups from Amazon to Uber and everyone in between.

Usage of paper money is so deeply ingrained in Indians that both of those companies had to break from their international models and make special arrangements for customers here. Amazon and Uber both adopted a cash payment option in India, as do their local competitors and everyone else that wants to sell stuff online in the country.

Even last year, online payments accounted for about 14 percent of all transactions. While that was a leap over previous years, it is still terribly low when compared to, say, big neighbor China.

However, in a major shift in trend this year, about seventy percent of urban Indians have said, in two different surveys, that they preferred online payments over paper money. That should be met with huge sighs of relief in the country’s burgeoning startup industry.

While cash on delivery has been a major growth booster for companies including Flipkart, Amazon, Ola, and Uber, it is an expensive and messy proposition. When customers pay by cash after using a service instead of paying upfront online as is the norm in developed countries, it takes a toll on the company’s finances, adding up costs and putting pressure on their bottom line.

The stress has been such that startups have swiftly moved towards alternate online payments like mobile wallets, in an attempt to get Indians comfortable with online transactions, and ease the pressure on themselves.

See: Snapdeal buys Freecharge in digital payments push

An American Express-Nielsen survey on Tuesday said 70 percent of Indian consumers across various cities said they prefer paying for online purchases with cards over cash on delivery (COD), thanks to quick refunds.

Not only that, Indian women have taken the lead in online payments, the survey said, as 74 percent of respondents said they use plastic money for their online transactions. Women are using credit and debit cards to shop on their mobiles (98 percent) and book flights online (56 percent). Female participants also had a higher penetration of mobile apps (98 percent) when compared to men (81 percent).

A separate survey conducted by EY, the consulting firm formerly known as Ernst and Young, earlier this month said as many as 71 percent of online shoppers in India preferred online transactions over cash, including using credit cards, debit cards, or net banking.

That survey polled about 700 respondents across various cities.

The Amex survey did not specify the number of respondents, but said it was conducted across the six cities of Delhi, Mumbai, Bangalore, Jaipur, Ahmedabad, and Hyderabad.