Indians’ Choice of Payment Mode(s): A Study Based on the Impact of Demonetization

Abstract

Mobile payments are increasing globally as a strong alternative to cash. The Government of India has taken several measures to make Indians use payment modes other than cash—the most dramatic example of that being the recent demonetization exercise. An important question here is what drove peoples’ choice of payment modes immediately after demonetization and how willing are they to persist with the same modes after stabilization. In this study we build and empirically test a conceptual model to study the factors influencing the willingness of Indians to persist with their post demonetization payment mode choices. The results from a survey of 138 respondents across India indicate a preference for continuing with digital payments over cash and card(s) post demonetization. Our logistic regression-based analysis suggests that privacy concerns are perhaps the strongest reason for people not to persist with digital payments; that transaction prices do not play the expected damping role in the adoption of digital payments; and that an exposure to digital payment modes has a positive and significant impact on persistence, as compared to cash or cards. This study—among the earliest of its kind trying to understand the preference of Indians with respect to payment modes post demonetization—has important practical implications for researchers, practitioners and policy makers working on issues related to the rapidly growing digital payments ecosystem.