Constant innovation is a necessity and there is no better example of it than the Indian government. After launching the Unified Payments Interface—this was built on Immediate Payment Service (IMPS)—in August 2016, the National Payments Corporation of India made two major revamps of the service. First, it introduced BHIM (Bharat Interface for Money)—built on the UPI platform—to emulate the working of mobile wallets in December. Recently, it integrated BHIM with Aadhaar Pay, another one of it’s initiatives where one can make payments using biometric authentication. While BHIM has attracted over 19 million downloads since its launch, BHIM-Aadhaar and a host of benefits in the form of cashbacks and referral bonuses are expected to fast-track the cashless adoption process in the country.
Why has PM launched BHIM-Aadhaar?
One of the key elements of getting people to adopt cashless is ease of transactions. Demonetisation did not leave people with much choice, but to adopt digital platforms, with cash returning to the system, the government would have to make processes much simpler. More important, given that there are only 250 million smartphones in India, it was necessary to launch a platform where not everybody would require a smartphone and payments would become easier than before. BHIM-Aadhaar does that and more. In integrating with an existing platform, it allows merchants to initiate payments without the user requiring a smartphone.
How will BHIM-Aadhaar work?
As it is only the merchant who would be initiating the transaction, she would have to register on the app. Once registration is complete, the merchant would have to purchase a fingerprint scanner, which will be connected to a smartphone. The customer would just present her Aadhaar number and then verify the payment with a thumb print. If the user has more than one account, she would be asked to choose a preferred account to complete the transaction.
How will it help consumers & merchants?
While with the previous version of BHIM facilitated a peer-to-peer transfer, which required the customer to have a smartphone or access USSD service, the new platform would need no such device. A customer who has linked her bank account with Aadhaar can simply walk into a store, enter the Aadhaar number and make payments via a fingeprint. For merchants, not only do costs of transactions come down, they would also have to invest less in infratsructure. So, all a merchant would need is her smartphone and a fingerprint reader, the cost of which is much lower than that of a swipe machine. Moreover, a merchant gets a direct transfer to her account, unlike mobile wallets where there is both a fee and a limit to what you can transfer.
How is the government planning to support BHIM-Aadhaar?
The government has announced a corpus of `495 crore for six months to get people to use BHIM-Aadhaar app. It is providing referral bonuses to those downloading the app and cashbacks to merchants doing transactions via it.
Under the bonus referral scheme, both the referrer and referee will get a bonus, provided the new user completes three successful transactions with a minimum amount of `50. Under this scheme, the referrer will get `10 per successful referral, and the new user `25 for using BHIM. For merchants, there is a cashback scheme, where each merchant would be awarded a maximum of `300 per month, totalling to `1,800 for six months. However, to avail benefits, a merchant has to have at least 50 transactions with 20 unique and non-repetitive customers.
Will BHIM-Aadhaar be a substitute for other digital modes?
Yes and no. Although BHIM is expected to displace certain modes—because it is easier to use than card machines—it will act more as a substitute for existing frameworks. Consider the case of point of sale (PoS) terminals; the banks, despite BHIM and UPI, have pushed 10 million extra PoS to promote digital transactions. Also, BHIM only fulfils the purpose for people who have a smartphone, and others would still require PoS devices, USSD and other modes. As for mobile wallets, they also have an advantage of being easier in processing of payments than BHIM, and offering more discounts and services.
What has been the use of digital transactions through different modes?
While demonetisation led to a spurt in digital modes, the pace of increase has slowed since then. Data released by RBI shows that card transactions in March, though higher than February, were lower than the December-January levels; similar was the case for mobile banking and USSD transactions. But for new modes like IMPS, UPI and prepaid payment instruments (these include mobile wallets), there was an increase. In fact, UPI transactions increased 48% in volume and 26% in value terms over the previous month. PPI transactions, which were looking at a month-on-month decline, also climbed up 15% both in volume and value terms in March. With BHIM-Aadhaar coming into the picture—the government has already enrolled 7 lakh merchants—numbers for UPI are expected to increase further in the coming months.
How should the government handle these different modes?
Although referrals and cashbacks are good measures to attract users for now, the government would not be able to keep it up forever. Therefore, going forward, it would require a more concentrated approach to further its digital mission.
For now, BHIM is not attracting any interbank, UIDAI or NPCI charges, but the government would have to let banks charge a fee to keep them in business, otherwise banks would have no incentive to promote these schemes. Instead of lowering the costs too much to hurt banks’ businesses or asking banks to bear the brunt, the government would do well to take some of these charges on its balance sheet.