The double-edged demonetisation announcement was met with equal parts – panic, anxiety, optimism and hope. Although a mid-year report had mentioned that India’s digital payments industry is growing at 10x scale to reach $500 billion by 2020, the ground (cash) realities for many were far from a dependence on digital yet. Over a month later, the dust is yet to settle as the cash crunch drives customers to banks and ATM queues continue to swell. However, with digital payments now becoming more of a norm, both merchants and customers are beginning to gloss over the initial challenges to focus on and appreciate the opportunities ahead. Merchants, particularly, have much to gain with the setup of a secure digital audit trail, and are already enjoying early benefits of going cashless, even as the government formalizes post-demonetisation plans.
Bridging the Digital Divide
While the government’s foremost reason for demonetisation may have been the clampdown on black money, financial inclusion was also intended as a strong by-product of change. Indeed, the latter has taken precedence within the last few weeks, driven more by necessity than any previous economic principle. As long as merchants and customers remained cocooned within a cash-sustaining cycle, it was difficult for either of them to consider digital payment avenues. The cash-reliant relationship between merchants, distributors and suppliers too, especially in the case of unorganized industry players, also resulted in near-zero online transactions. Moreover, merchants seeking digital payment options often felt discouraged by laborious registration formalities, high installation costs of EDC machines, and confusing transaction pricing plans from banks.
However, demonetisation has turned earlier practices on their head. Banks and digital payment providers are implementing a no-holds-barred approach to easily onboard new merchants, and get them started on online transactions. With the merchant discount rate (MDR) waived off till year-end, and excise duty waiver on PoS machines acquisition till 31 March 2017, the government has already signalled that it is keen to ensure financial inclusion as early as possible, and help achieve the vision of Digital India. Merchants too have displayed their willingness for digital transaction. Within ten days of the demonetisation announcement, the demand for PoS machines at a leading Indian bank grew to 5,000 a day from 5,000 a month requested earlier!
Acquiring New Customers with Better Service Delivery
Another draw for merchants to go digital would be their capability to win new customers, and offer them the promise of quicker checkout options and bill settlements. With payment apps displaying information on nearest merchants (their location, service details, coupons, reviews, and more) not only would customers be able to enjoy and compare a range of local offers, merchants could also improve their visibility among existing and new users. Customers could be prompted to easily transact with new merchants, as the same digital wallet could help pay for a range of items. There would be no need to reach for a credit/debit card each time, or to sign payment receipts on transaction completion.
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In stores, cashless payment options would help customers zip past the payment counter, either by swiping their cards, scanning QR-codes, or by even making use of more advanced tech-driven secure payment options. Long queues at the kirana shop counters, especially at the beginning of each month, could soon become a thing of the past. Moreover, merchants of all types—right from the roadside chai-wallah to cashiers at large departmental stores—could ensure that the exact price is paid for each item purchased, without any change hassles.
There are challenges to be addressed here too. Given India’s sometimes erratic network coverage, sales may be affected if online authentications are not completed in time. This could snowball into a serious challenge, especially during peak sales periods. Resistance to digital from customers and merchants also needs to be overcome, to smoothly transition them to online transactions. In the wake of demonetisation, the already-crowded fintech industry space has become even more competitive, with each player trying to outdo the other in terms of more advanced digital payment options to serve customers faster. We can be sure that this buzz is going to continue and people will be clued in for further innovations that are rolled out.
The push towards digital payments fueled by demonetisation would also help merchants develop a rich credit history, helping them expand on business opportunities driven by their own credibility. As it will be easy to maintain a clear record of transaction data on digital payment infrastructure, merchants can seek loans from banks quicker and easily avail of governmental financial incentives. Additionally, with the cost of cash being much higher than that of using digital payment systems, demonetisation will help the country save upto Rs 21,000 crore currently being annually spent by financial institutions on cash operations. With all transaction amounts being directly credited to the merchant’s account, there will be lesser chance of tax evasion and corruption.
Improving Payments Security
From April 2013–November 2016, the country’s leading 51 banks lost Rs 485 crore to fraud and theft. If this was the case when 90% transactions were offline, consider the security breach ramifications now, with demonetisation driving higher transaction volumes online. Many merchants coming onboard digital platforms now are also new to the online transaction experience, making it imperative for financial institutions and payment providers to ease their transition to digital with user-friendly payment acceptance and withdrawal methods. To address the threat of fraud looming, large banks and fintech industry players need to continue to deliver fool-proof and secure payment systems. Security could serve as the key differentiator among similar services offered by competing payment providers.
With India making steady progress on its digital payments journey, merchants can gradually let go of their cash-dependence and depend more on safe, secure and superfast online transactions. Offline payment options are also being explored, so that customers without a data connection can also be brought within the cashless fold. As the competition between e-payment providers intensifies, consumers will benefit from the flurry of new and innovative products and services launched. The front-runner in the digital payments provider ecosystem, however, would be one who can drive safe and user-friendly tech payments with an intuitive understanding of customer and merchant requirements. Only when great technology goes hand-in-hand with user empathy is consumer engagement likely to soar to never-before-seen levels.
(The author is CTO & Co-Founder of M-commerce company Zeta)