Cash and cashless payment systems usage among consumers: did India’s demonetization bridge the digital divide?

Purpose This study uses India’s dramatic monetary policy change in November 2016 (demonetization) as a natural experiment to investigate whether it changed the usage of cash and cashless payment systems among individual consumers. We investigate whether demonetization uniformly impacted individual consumers on both sides of the digital divide dimensions, such as (1) locale (urban vs rural), (2) gender, (3) education and (4) income. Design/methodology/approach We use data from two waves collected in September 2016 (N = 305) and February 2017 (N = 303) from two districts in India to test our hypotheses. We control for various contextual factors, including individual factors, and use ANCOVA to test the changes before and after demonetization. Findings Results show that cash and cashless system usage reduced after demonetization. The results also indicate that the impact of demonetization may not be uniform across the different social dimensions. Whereas cash usage was reduced across gender, income and education dimensions, it was reduced only for urban consumers and not rural consumers. Cashless payment system usage remained unchanged among urban, male, high-education and high-income groups but reduced among women, low-education, and low-income groups. Again, cashless payment system usage remained unchanged among rural consumers. Originality/value This study examines how monetary policy change may impact consumers differentially based on their position on either side of the digital divide. While cashless payment systems have been studied in different contexts, the impact of a monetary policy decision has not been investigated in the literature.