• June 2019
• Teaching Material

Innovation and Business in Emerging Markets: Sir Fazle Hasan Abed

• 2019
• Working Paper

The Effect of Payment Choices on Online Retail: Evidence from the 2016 Indian Demonetization

The Indian banknote demonetization in 2016 was one of the most significant international events of that year. Overnight, 86 percent of Indian currency in circulation was declared invalid unless exchanged for new bills. The sudden and unexpected demonetization constituted a large shock to the entire Indian economy. One effect of the ensuing cash shortage was a large and sustained increase in the adoption and usage of digital payments. We use detailed sales data consisting of more than two and a half million transactions from a leading Indian online retailer to empirically investigate the effects of payment digitization on the online retail industry. We take advantage of the demonetization as a source of exogenous variation that induced a subset of consumers to switch to digital payments from more commonly used cash-on-delivery payments. We show that consumers who switch to digital payments maintain their purchase frequency but spend more and are less likely to return their purchases. Our findings show that firms in emerging markets may enjoy gains from consumer demand in addition to operational gains resulting from payment digitization.

• June 2019
• Case

Kenya Railways