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The secret to how India’s largest digital wallet took over the market

How black money, politics, and a single mistake changed how the country exchanges money

How black money, politics, and a single mistake changed how the country exchanges money


A few months back I was invited to speak at my first international conference in Mumbai, India. I’ve been to India a few times before but always with family and always on a regimented schedule of seeing all 84 of my 1st, 2nd, and 3rd cousins. I knew that I eventually wanted to start or expand a company to there and this was my first opportunity to start building some real relationships.

I spent 3 weeks travelling through Mumbai, Bangalore, and Chennai speaking to some of the top venture capital firms, seasoned entrepreneurs, rickshaw drivers, and gossiping aunties.

What I learned forever changed the way I viewed the country.

For those of you who don’t know, India is a country of 1.3 billion people that is rife with black money. Bribes are commonplace and it’s fairly normal for someone to have a mattress full of cash in their apartment. In fact, it’s so bad that more than 14% of India’s GDP ($400B) is estimated to be black money that is stored outside the country and even more is hidden inside the country in peoples couches, walls, and sofas.

Enter Prime Minister Modi, a right-wing political leader who’s goal was to end corruption and revitalize India’s economy. One of his marquis policies — ‘demonetization’.

His government held in secrecy that to combat the spread of black money, they were going to outlaw 500 rupee and 2000 rupee bills (the equivalent of $1 and 5$ American bills — 85% of the currency in circulation) and that citizens would have 50 days to deposit them into a bank account. This would be the largest demonetization effort in world history, with the goal of scooping back up all the money that people had been hoarding for years to evade taxes.

What was a massively ambitious economic play resulted in absolute chaos for 1.3B people. There were lineups 6+ hours long in sweltering heat for people to deposit their cash. Relatives in Mumbai and Bangalore would tell me, over tea, how the lines would often wrap entirely around the block with people fainting and in some cases dying from heatstroke while they waited. Poorer families that we’re unable to deposit their funds lost everything, families that didn’t have bank accounts to begin with, lost even more. And the resolution? Black money is still rampant on the market.

Now for the real disaster. The day following demonetization, new bills were supposed to be accessible from ATMs across the country. But what someone missed, was that the new bills were slightly larger than the old ones — meaning that 100 000s of ATMs had to be refitted. Resulting in 2 weeks where 1.3B people were cashless.

While people were outraged, a select few saw an opportunity. PayTM — India’s version of Paypal was already gaining strong momentum in the country as a way to make cashless transactions. The day after this mistake was discovered, PayTM took out full front-page ads in every newspaper and sent out street teams to pay merchants to onboard and accept PayTM as a valid payment method (they didn’t have a choice because no one had any cash). The number of users skyrocketed with user growth of digital wallets shooting up by 745%. It was genius.

From the rickshaw driver who would take me to Bandra station to the old women selling coconuts in the alley behind my apartment, everyone was using PayTM. Making them the #1 digital wallet in India and pushing the country into a new digital economy.

It just goes to show — the bigger the screw-up, the greater the opportunity.

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