Shaping a 'Sustainable Digital Payments Landscape' in India

By Richard Canday, Associate VP, Electronic Payment & Services
Shaping a 'Sustainable Digital Payments Landscape' in India

Headquartered in Mumbai, Electronic Payment and Services is a leading payment system entity that specializes in retail banking & technology domain. Providing exclusive ATM outsourcing services, the entity has pioneered in various initiatives in ATM & payment industry.

ATMs are a Retail Delivery Channel for Digital Payments. In developing markets ATM machines serve populations previously excluded from the financial system, often substituting for bank branches in remote corners of the country where online or mobile service is unreliable or simply unavailable. In more advanced markets, ATMs are filling financial institutions seemingly irreconcilable needs to achieve greater cost efficiency and deliver more personalized customer service. ATMs have benefitted banks, independent deployers, cardholders, retailers and governments, as well as society and the economy in general for five decades. They are an extremely popular and trusted global technology which is at the forefront of modern retail-based economies.

The ATM is a 50-year-old innovation and is not contending with newer channels, but complementing them as manufacturers and software developers seek to empower consumers through ever more streamlined and synchronous financial self-service options. The ATM is certainly the most important financial innovation we've seen in the past 50 years. In comparison to online and mobile banking, 61 percent of consumers globally name the ATM as the channel they most often choose.

A policy change that supports and facilitates the growth of the ATM services industry will invigorate the government's campaign on driving financial inclusion to the unbanked, and encourage ATM manufacturers and service providers in reaching out to semi-urban and rural centers for providing financial and digital payment services. It is remarkable that 50 years after its introduction, the ATM remains at the forefront of the consumer banking experience.

A Bourgeoning Digital Landscape

Earlier this year, Aadhaar enrolment figures crossed 1 billion, making it the largest biometric database in the world. Over the course of the year, various application programming interfaces that would eventually become India Stack were released, offering a broad range of Aadhaar-powered solutions. The most significant of these was Unified Payments Interface (UPI). Due to the delay of on-boarding of merchants and high charges, UPI was a non-starter. However, NPCI is planning to launch UPI 2.0 in the coming year to increase its acceptance. Consumers used UPI, the mobile payments platform released in August 2016, for 300,000 transactions amounting to Rs. 90 crore in November 2016. The number grew to 1.4 million transactions, worth Rs. 480 crore, till December 25, 2016.

India may have the world's second largest internet user base, but internet connectivity remains out of reach for nearly 76 percent of the population i.e. 950 million citizens. NPCI has now helped banks and government develop the latest USSD (Unstructured Supplementary Service Data) which enables users to transfer money through mobile without internet. There were 7,000 transactions, amounting to Rs. 73 lakh, in November 2016 through USSD, which uses mobile networks and not the Internet, making it the least used digital payment platform by number and value of transactions. USSD transactions rose to 60,000 in December 2016, amounting to Rs. 6.6 crore until December 25, 2016.

Improvise & Incentivize

The Demonetization push toward PM Modi's much advocated cashless society could drive digital transactions to grow to $470 billion from $190 billion by 2020. Aimed at promoting digital transactions, government think tank NITI Aayog has proposed an award scheme with a budget of Rs. 125 crore to incentivize people using electronic mode of payments for transactions as small as Rs 50 to Rs 3,000 through weekly and quarterly lucky draw contests. The Union government will launch awards under the Lucky Grahak Yojana and Digi-Dhan Vyapar Yojana, twin schemes incentivizing digital payments in 100 cities over 100 days, announced NITI Aayog CEO Amitabh Kant. NITI Aayog along with NASSCOM and telecom operators has set up a dedicated helpline to address issues related to digital payments as the government has taken several steps to promote digital transactions after demonetization. Furthermore, the Reserve Bank of India (RBI) decided to slash MDR charges on payments made through debit cards and do away with levies on small transactions through mobile phones and Internet from January 1 to March 31, 2017. With its vision to make India's cashless economy, the government is set to launch 'Aadhaar Payment App' shortly.

PM Modi's push for a cashless society within the government alone may save nearly Rs. 1 lakh crore, as per the recent report on December 27 by Watal Committee set up to make recommendations on digital transactions. Although the committee also noted the transition to digital payments cannot be agnostic to the actual costs incurred by the end customers, the reasons for preferring cash, and the factors inhibiting the uptake of existent channels of digital payments. The committee was formed to review the framework related to digital payments under Ratan Watal, Officer of Special Deputy in the Ministry of Finance.

Safeguarding the Consumer

The government has a colossal task ahead driving transition into cashless economy as the public is forced to go cashless with inadequate infrastructure and security system in place. The lack of digital preparedness is already threatening to hit the consumption growth. The government's cashless payment push needs to be urgently supported with legislative steps to safeguard customers and their data, allow open access payment systems and create a payments regulatory board that functions largely independently of the Reserve Bank of India's central banking functions. With the rising number of users of digital payment services, it is absolutely crucial to develop consumer confidence on digital payments and essential to have legislative defenses to protect such consumers against frauds and security breaches, which experts say will increase in time since technological advance has rendered financial frauds boundary-less.