The question that always comes from a common man is, why digital? Especially when satisfactory cash is available after demonetisation. The thought process requires a paradigm shift to transform from cash to cash-less society. A change in the payment ecosystem to digital has huge benefits for the common man. It guarantees access to formal financial services and advantages from e-commerce, particularly for those who continue to be excluded. The earlier initiative of the government to endorse financial inclusion and Pradhan Mantri Jan-Dhan Yojana were fundamental precursors to our current thrust for digital transactions.
The finance minister in his last budget speech stated to roll out two million Aadhaar-based PoS machines. Initiative from the government is going to accelerate financial inclusion, by opening new business models and markets in addition to curbing cash related costs and funding of criminal activities. From the customer ‘simplicity’ point of view, adoption of Aadhaar Pay, merchants will be enabled to receive payments from customers without any physical payment instrument, is paramount. The application has just to be downloaded by merchants on their phones and linked to an Aadhaar biometric reader. The payment will be processed, just with the thumb impression and not require any physical instrument or mobile phone. This will address the concerned of the people at the bottom of the pyramid.
In fact, OTP and QR code-based transactions will become a history shortly as no physical instrument is required. Entry of several non-banking players into payment space has led to the customer becoming more and more demanding. The government and the regulator will have to constantly evolve rules for competitive markets so that customer confidence is maintained. The traditional role of the bank-driven payment system has now skewed towards Fintech companies. Therefore, a responsibility of the regulator has increased to strengthen and build safe, accessible and resilient payments ecosystems. The recently published Watal report has recommended to make independent Payments Regulatory Board within the RBI structure to monitor the payments system.
The banks should recognise the fact that 65% of the population is under 35 years of age, and they are easily going to grasp the new technologies. Few banks have identified the lack of established back-end infrastructure. The model of levering digital payment to boost financial inclusion have been tried and tested in other jurisdictions, like m-pesa payment platform in Kenya and digital village Akodra in Gujarat. There is a demand to make payments through various channels inter-operable. Moreover, there is a need to address the gap of consumer awareness and the confidence in the digital payment system. This will also help create credit history and can be used to enable to provision of micro-credit to small businesses and low-income Indian citizens.
BHIM application has given an opportunity to smaller banks to enter into retail payment space allowing their customer to download applications and access various services. Unstructured Supplementary Service Data communication uses a mobile network’s signalling channels to provide reliable payment services on basic feature phones. The tariff of the telephone company was a major hurdle, which is lowered to 50 paise from `1.50 per session by Trai. It seems tariff is still higher, required to lower it to boost the USSD, which is mostly used by basic feature phones. There is a need to promote digital payment and receipt by the government. This can be done by mandate to the government department and agencies to provide an option to consumer to pay digitally. This will bring significant reduction in the cost on account of inefficiencies associated with the cash and other paper based payment system.
However, a major concern for the regulator is to address the issue of grievance handling mechanism. The case of fraud or non-processed transaction will increase and requires prompt response. Two dynamic forces are very important for the success of the payment system. First is accessibility and the second, inter-operability. But, the biggest hurdle to cross is the archetype thought process of the consumer from cash to cashless payment system.