Long queue at banksLess than four weeks before Prime Minister Narendra Modi had announced demonetization of 500 and 1000 rupee notes in India, the U.S. Agency for International Development (USAID) had announced the establishment of Catalyst: Inclusive Cashless Payment Partnership to ensure “a quantum leap in cashless payment in India.

The press statement issued by USAID on October 14 says:  Catalyst  “marks the next phase of partnership between USAID and India’s Ministry of Finance to facilitate universal financial inclusion”.

To understand America’s influence in Modi’s sudden demonetization drive, it is necessary to quote in detail from the USAID press statement: “This multi-stakeholder partnership is designed to scale digital payments systems in India, catalyzing an exponential increase in cashless payments in select geographic locations. These locations will be selected based on criteria such as smartphone penetration, the local economy, and administrative feasibility.

“This launch marks the next phase of partnership between USAID and India’s Ministry of Finance to help catalyze the rapid adoption of digital payments in India as a step toward achieving Prime Minister Narendra Modi’s vision of universal financial inclusion to end “economic untouchability” in India.

“As noted by the White House during Prime Minister Modi’s visit to the United States in June, the United States and India recognize the importance of efforts to expand financial inclusion as a means to fostering inclusive economic growth.”

Catalyst’s Director of Project Incubation is Alok Gupta, who used to be Chief Operating Officer of the World Resources Institute in Washington, which has USAID as one of its main sponsors. Gupta was also an original member of the team that developed Aadhaar.

Badal Malick, chosen as the CEO of  Catalyst, was Vice President of India’s most important online marketplace: Snapdeal.

About 10 months before Catalyst was launched, the USAID had commissioned a detailed study on how to make India cashless. According to USAID press release on January 20, 2016, the study was conducted by strategic advisory firm Dalberg in six locations across four states in India.

The research was carried out in the metropolitan cities of Mumbai and Hyderabad, in the smaller cities of Kota and Vishakhapatnam, and in villages around Guntur and Jaunpur. The report titled Beyond Cash captures the key findings from quantitative surveys with over 2500 respondents and with low-income consumers and small merchants to understand their spending and saving patterns, and their perception of cash and digital payments.

Significantly, the study showed that across India, 97 percent of retail transactions are conducted in cash or check. It also found that only 29% of bank accounts in India were used in the last three months prior to the study. Only 6 percent of merchants accept digital payments, and just over 10 percent of consumers have used a debit card for payments in the last year.

The report observed that merchants and consumers were “trapped in cash ecosystem.” Since few traders accept digital payments, few consumers have an interest in it, and since few consumers use digital payments, few traders have an interest in it. As a solution it suggested: “A strong external impulse is needed to achieve a level of card penetration that would create mutual interest of both sides in digital payment options.”

In a press release titled Partnership For A Digital, Inclusive Economy In India, issued on December 15 – more than a month after Modi announced demonetization – USAID said: “Inclusive electronic payments, such as mobile money and digital wallets, not only have the potential to lift millions out of poverty by providing them access to formal financial system, but can also improve governance by reducing costs and increasing transparency.”

Significantly, the USAID press releases (see links below) show that the initial plan was to begin digitization from select cities and then gradually spread across India. It is still not clear why the Prime Minister attempted to do it at one go or whether he will try the phased approach now.

Badal Malick, the CEO for Catalyst, was quoted by USAID as saying: “So far, six cities have been shortlisted, including Indore, Visakhapatanam, Kota, Jaipur, Bhopal and Nagpur, of which one will be chosen for the project. The goal is to take one city and increase the digital payments 10x in six to 12 months (sic).”

Over 35 key Indian, American and international organizations have partnered with the Ministry of Finance and USAID on this initiative. According to Canada-based Global Research, they include Better Than Cash Alliance, the Gates Foundation (Microsoft), Omidyar Network (eBay), the Dell Foundation Mastercard, Visa, Metlife Foundation.

Interestingly, members of Better than cash, according to Global Research, include credit card companies Mastercard and Visa, Ford Foundation, the Gates-Foundation. Omidyar Network of eBay-founder Pierre Omidyar and Citi. Almost all of them are individually also partners in the current USAID-India-Initiative to end the reliance on cash in India and beyond.

A facebook posting on Catalyst’s page on Wednesday says, “Catalyst is looking for young, energetic and entrepreneurial Associates in Jaipur. Are you an individual with the passion and drive to create cashless payment models that are scalable, lasting and inclusive? Join our unique team.”

For detailed USAID reports read:  https://www.usaid.gov/india/press-releases/oct-14-2016-usaid-launches-catalyst-drive-cashless-payments-india

https://www.usaid.gov/india/press-releases/jan-20-2016-beyond-cash-identifies-barriers-and-solutions-digital-inclusive-economy-india

 

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