Why India needs digital payments to become an economic superpower?

April 21, 2019 3:23 PM

Thanks to cashless digital payments on cards, Internet banking and wallets, now we have access to multiple electronic payment options when it comes to shopping for the best items.

cashless transaction, digital payments, Reserve Bank of India, RBI, Cash on Delivery, Mastercard, economic growth, Indian economy, demonetiastionAccording to the Reserve Bank of India (RBI), as of September 2018, the number of debit and credit cards has gone up significantly to 990 million and 44 million, respectively, showing a preference for cashless transactions.

When you are browsing the Internet and come across an item that you would like to gift your friend or a family member, you do not need to think whether you have enough cash in your wallet or not. Thanks to cashless digital payments on cards, Internet banking and wallets, now we have access to multiple electronic payment options when it comes to shopping for the best items here in India or across the world.

With digital payments, the world is our oyster and at every step, cashless payments are helping us save time and money. One does not need to withdraw cash to book a cab or pay the neighbourhood merchant, many of whom now accept cards. Every time you run out of cash, digital payments make it possible to finish your chores at the market or go home at your convenience without withdrawing cash from the ATM.

While digital payments are yet to dominate India’s financial transactions completely, they have found their way into the Indian psyche following demonetisation. This shift has become evident in some of the data that shows a significant increase in acceptance locations in the country from 1.2 million in December 2015 to over 5 million by end 2018, almost three times growth in less than 3 years.

It is also very interesting to the see the change in digital spending behaviour of Indians in the past 2 years. Online (Internet based) shopping spends now account for 35 per cent of all Mastercard card spends. This means more and more Indians are comfortable using their debit, credit and prepaid Mastercard cards for online shopping versus face to face POS transaction at a merchant location. This change in behaviour is thanks to the big e-tailers like Flipkart and Amazon, mobility operators like Ola and Uber, and food aggregators like Swiggy and Zomato who are incentivising digital payments and weaning customers away from Cash on Delivery.

According to the Reserve Bank of India (RBI), as of September 2018, the number of debit and credit cards has gone up significantly to 990 million and 44 million, respectively, showing a preference for cashless transactions. We at Mastercard have invested heavily in protecting and growing the digital payments ecosystem. Supporting the Digital India initiative, Mastercard has done a thorough research and analysis to gauge the payment patterns of consumers in this country. We have lowered our debit card fees by 99 per cent for low value transactions below Rs 200, which forms a large chunk of payments made in cash, thus assisting in adoption of digital payments in the habit forming daily use category.

Mastercard is also heavily promoting the sub-3 second contactless, tap & go transactions below Rs 2,000 which do not need card insertion in the POS machine and a PIN. Due to the best user experience of contactless, tap & go; transactions are galloping month on month as more and more Indians are adopting this friction-less and superior payment method to tap & pay at retail outlets. Merchants also like contactless, tap & go payments as the checkout experience is the best allowing merchants to complete transactions in less than 3 seconds without even touching the customer’s card. While most of the contactless, tap & go transactions are coming from the metros, tier 2 and 3 cities are showing a very positive growth trend.

Cashless transactions can ensure fast progress and growth of an economy. This is why we are partnering with the government to contribute to their 30 billion transactions’ target in FY 2018-2019 and also trying to connect 63 million mostly small and medium sized merchants in the country to increase acceptance of digital payments. This year, the Information and Technology Ministry revealed that digital transactions in India had risen, in the last two years, from Rs 79.76 crore in October 2016 to Rs 224.8 crore in August 2018. Change is the only thing constant and the transition to digital transactions and growth is likely to catapult India into the league of developed nations through various benefits:

Economic growth: Convenient cashless transactions enable people to make more purchases in a shorter time. Many people end up purchasing items spontaneously, thus contributing to economic growth. A rise in the demand for goods will lead to more production and supply which in turn will create jobs. More digital transactions also mean additional data will be available to the government for research and better framing of policies. For India, this could be a huge game changer – corruption can be checked and the entire financial growth can be mapped in a planned manner.

Reduced expenses: With increased digital payments, the influx of cash can be checked reducing the cost of producing and distributing them. Most paper currencies have a life span of six years and production of both currencies and coins can get expensive if digital transactions do not take over. There is also a huge expense involved in manual accounting of cash at different levels, which can be done away with once the economy becomes cashless. The small change can ensure efficiency at a larger level in organisations and the government with more chance of accuracy. The risk of theft in certain areas can also be reduced if people can carry less amounts of cash.

Transparency and convenience: Digital payments ensure accountability in all the transactions. Since everything is recorded digitally, there is always a way to verify transactions and keep a track of them. While using cash payments, it might become difficult to hold anyone accountable for any additional expenditure. For instance, when the government made digital smart cards mandatory in case of pension payments replacing the system of manual cash payouts in rural areas, a 47 per cent reduction was reported in bribery. In case of any fraudulency also, it can be detected faster because there are digital records for it. Online transactions are also fast and convenient for many people who might find it difficult to withdraw cash or carry it around.

While India needs to adopt cashless transactions completely to embark on the journey of becoming a super economy in the next few years, there are a few obstacles that need to be tackled. With IoTs and artificial intelligence taking over, it is also important to have a sustainable and lucrative business model that caters to the new-age digital ecosystem with a robust cybersecurity system. While challenges are aplenty, well begun is half done and I think the government is already gearing up for a safer and brighter cashless future.

(By Rajeev Kumar, Senior Vice President, Market Development, South Asia, Mastercard)

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