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The effect of the adoption of emerging electronic payments options on improving working capital management and profitability of firms in India
Journal of Payments Strategy & Systems,
5
(2),
188-208
(2011)
Abstract
The emergence of electronic payment (EP) options in India, their increasing coverage in terms of number of branches, options and pan-India availability and their phenomenal growth in the last few years are opening up a wonderful opportunity for Indian firms to improve/optimise working capital management (WCM), leading to an increase in the profitability and value. Many studies have shown that efficient WCM has a direct relationship with profitability of the firm. The emerging EP options (and non-EP options as well) help the firm: to improve (or rather reduce) the day’s sales outstanding (DSO) and quickly collect payment, thereby reducing the cash conversion cycle time — an important measure of how efficiently the working capital is managed; to allow timely disbursal of payments, to take advantage of early payment discounts; and to reduce the overall cost associated with these transactions, resulting in optimised working capital requirements and associated benefits. Indian firms can immediately shift to EP (if they have not already done so) and benefit. This paper analyses the impact of efficient WCM on the profitability of firms, discusses the emerging EP options in India and their coverage and growth, and examines how they affect the various aspects of WCM in India — especially in accounts receivable, accounts payable and transaction costs.
Keywords: working capital management; profitability; liquidity; cash conversion cycle; emerging; electronic payments; India; cash management services
The full article is available to subscribers to the journal.
Author's Biography
Mahadevan Balakrishnan is currently with the Payment System Development Group, World Bank, helping multiple developing nations improve their financial market infrastructure. Prior to that he was Chief Operating Officer of the National Payments Corporation of India (NPCI), responsible for Business, Operations and Technology. In that role he was involved in the creation of multiple retail payment infrastructures for the country, covering NFS ATM Network, the Immediate Payment System (IMPS), ACH, cheque truncation systems, the automation of 1000+ clearing houses in India with a standard solution, AADHAAR-based payment ecosystems for direct benefit transfer schemes, and the RUPAY domestic cards scheme, thus helping NPCI deliver its vision of simple, easy, convenient and cost-effective retail payment systems for all Indians. The systems he helped create in India facilitated the PMJDY financial inclusion schemes and the Direct Benefits Transfer to Bank Accounts schemes, saving India billions of Rupees. He has over 25 years of banking/technology leadership/ management experience with leading banks such as ABN AMRO Bank, Barclays and Citibank, and he was also involved in the implementation of some of the payment systems for these banks. He is a postgraduate in Business Administration (MBA) and in Bank Management (MBM), and has a Doctorate (PhD) in Financial Management/Payments. He has published several papers relating to payment systems in national and international journals.
