A cashless world society seems imminent, and that’s good news for India. Our national priorities, of digital payment systems and gateways, can usher in Digital India 2.0, and transform the country into one of the world’s most digitised societies. Fueled by the unfortunate COVID-19 pandemic, India saw a massive shift towards digital transactions. This is in tune with the prime minister’s vision of a Digital India, and this is the opportune time to build a robust economy through safe, secure, and accessible digital payment solutions.
‘Digital India’ got a big boost in the field of monetary transactions with the government’s demonetisation move four years ago. Since then, there has been a marked increase in tools and solutions available in the e-payments sectors. The Indian consumer has her choice of e-wallets, United Payments Interface (UPI) systems, Unstructured Supplementary Service Data (USSD) services, and more, to transact financially online. India is a mobile-first country, with lakhs of new users getting access to the internet each month. At 574 million, India’s internet penetration grew at 24%, to a total of 41% of the population in 2019 (ICUBETM report). This permitted banks to provide net-banking and mobile-banking services to customers. After demonetisation, even traditional banks had begun to incentivise customers to make payments digitally from their own bank accounts. As the natural step forward from here, other players have begun to promote cashless transactions for individuals and businesses alike.
As citizens get more comfortable with the idea of making payments online or via an app, the total value of digital transactions has also risen. For instance, since its inception in 2016, transactions via the UPI system reached a value of Rs 2 lakh crore at the end of 2019. According to Razorpay’s The Era of Rising Fintech report (Razorpay Fintech Report), India saw a mammoth growth of 383% in digital payments between FY18 and FY19. This proves that the Indian digital transactions market is set to grow at a rapid pace.
Digital payments and the transition to a cashless economy are also important milestones for India as we strive to reach our $5-trillion-economy goal. Further, government policies and private sector initiatives, specifically to help the retail transactions segment, could help move 30% of retail transactions to digital channels by 2025. This could range from promoting the benefits of digital payments to incentives to increase adoption.
Cashless transactions have, in fact, revolutionised how business is conducted in India. The sheer convenience of these transactions has helped MSMEs in India expand customer bases. These organizations could gain greater market access, streamline operations, and move towards a more transparent payment chain. According to the Razorpay Fintech Report, cash dependency has fallen in P2P (peer-to-peer) transactions in favour of cards and UPI, and in P2M (person-to-merchant) transactions in favour of cards and net-banking.
Many stakeholders played a critical role in getting us to this point. The National Payments Corporation of India (NPCI), which oversees electronic retail payment systems in the country, created an infrastructure for payments and settlements in India. In fact, the development of the UPI system, payment applications such as Bharat Interface for Money (BHIM) and RuPay were catalysts for increased use of digital payments in India. This is a great achievement for the NPCI. Additionally, since transferring money digitally is now so simple, thanks to the UPI system, there are now several private players in the market like Google Pay, Amazon Pay, PayTm, PhonePe, and, now, WhatsApp Pay.
The most popular apps are usually located on the most valuable and contested piece of real estate in the digital world—the ‘home’ screen of the phone. In the world of intense competition, users will self-select apps that are easy to use and serve multiple purposes. For example, the addition of a secure payment platform to a popular app like Whatsapp will help users chat with their network and transfer money as well via a single, handy app.
The growth of the mobile payment industry is incredible and very much required for the country’s progress. But, what do we need to do to prioritise the security of sensitive data? We may need further regulatory impetus to address critical issues such as trust-deficit of users, security of transactions, privacy concerns, and streamline the grievance addressal mechanism. In fact, safety is going to be the most defining factor to help shape India’s digital future. Payment solutions that leverage the UPI architecture offer a more secure gateway. This type of infrastructure complements the standards set by NPCI.
RBI also appears to be integrating its vision of decentralisation and competitive market economics, in light of the release of the Draft Framework for authorisation of a pan-India New Umbrella Entity (NUE) for Retail Payment Systems earlier this year. This is a welcome measure by RBI, and a paradigm shift in the central bank’s outlook. This move, when finalised, will help breakdown existing monopolies and encourage healthy competition—all to the Indian consumer’s benefit.
Policymakers will need to follow RBI’s broader objective of financial inclusion, and offer necessary autonomy and flexibility to drive collaboration and growth. The onset of these payment features signal the commitment of newer players, such as WhatsApp Pay, to the core principles of the Digital India campaign and steer digital transformation.
Particularly now, during the COVID-19 pandemic, regulators are urged to simplify the regulatory framework governing digital transactions. We need to build consumer trust in digital transactions, and inspire businesses and customers to adopt adequate security safeguards. Organizations that design with privacy and security in mind will thrive. Investing heavily in encryption and other security measures will be paramount to securing private data of all Indians. The new private entrants are coming with stronger encryption and extend their high-security policy to their payment platform to facilitate secure digital communication and transactions.
It is clear that for Digital India 2.0 to be truly successful and enduring, the Indian consumer will need to feel assured of safety of their money, security of their information and simplicity of use. The government is to be lauded for its initiatives in this area but, at the same time, it will need to continue to engage with stakeholders and policymakers to create a facilitative regulatory environment that is market-friendly, and fosters innovation and growth.
This is a sure shot way to expand the number of digital transactions, and propel India towards a cash-lite economy. We will then set the stage for Digital India to become a reality for all Indians.
India already ranks 44th in terms of digital competitiveness in the world (IMD World Digital Competitiveness Ranking 2019, WDCR). The rank is based on how well a country’s residents understand new technology, their competence and preparedness to develop and embrace new innovations. For India, the woods of cashless economy are indeed deep and greatly rewarding as well as alluring, but the trail necessarily requires the enduring companionship of innovation and security.
With research inputs from Chandana Bala
The author is Honorary Fellow, IET(London), and president, Broadband India Forum. Views are personal