UPI and USSD can be the key for a cashless economy
With 68% of the transactions in India being cash-based, suddenly flipping the system around to make it cashless was definitely hard to cope with, but the hope among the people that this very revolution will curb fake currency, black money and corruption in the country motivated them to heroically face the hurdles. However, even after 50 days the situation is yet to stabilise. Everything seems to be in a mess in urban areas, despite the fact that people in cities are equipped with word-class technology.
Undeniably, with little infrastructure and almost no cash available in the banks in rural areas, the drive has immensely impacted the 72.2% of the population residing at the grassroots. In the first few weeks, the cooperative banks, which are more prevalent in rural areas, did not receive any funds, leading to chaos.
Demonetisation led to re-instigation of barter system and an increase for informal credit system. But the impact of demonetisation has not been uniform. Proactive states like Rajasthan, where government issued cards to each family under the Bhamashah Yojana, were less impacted than those like Bihar and Jharkhand.
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Another factor that has contributed substantially to this chaos is that a large percentage of the money was available in the bank branches, while very little funds got transferred to the ATMs. The government needs to ensure that all ATMs are plush with cash. More important, in rural India, where transactions are done through business correspondents (BCs), bank branch needs to ensure that the BCs have enough cash to service their customers.
At present, people are going in for mobile wallets. Undoubtedly, the demonisation move has accelerated the business of digital wallets and about 10 large and 50 small wallets are expected to join the bandwagon in the next couple of months. These e-wallets have definitely given relief to some extent to the urban customers, but unfortunately are of little use to the semi-urban and rural people as majority of them don’t have smartphones. Interoperability between the wallets is also a challenge that needs to be resolved.
But, government services like UPI or USSD do not face any such challenges. UPI is applicable across all the banks in the country. It can be downloaded as an application in a smartphone. For users of a feature phone, the NUUP option using USSD technology should be encouraged. By dialing just *99# immediate payments can be made by the most basic phone available. This requires no internet access but only mobile connectivity. UPI is built on the Immediate Payment Service (IMPS) model in which the payment can be made in less than 40 seconds. All an individual needs to do is make a unique ID, which is typically xyz@bank, in order to create a link with the bank account and register the other person’s account number. Despite having such a beneficial feature, the awareness of UPI or USSD is almost nil in rural as well as urban areas. Being a government-run project, UPI should have been promoted on a big scale before initiating demonetisation. Even now the government has the opportunity to promote this venture and AISECT is doing its bit via multi-purpose centres.
Transactions in urban areas are greater in value and have greater profitability compared to rural economy. Focus should be on converting urban economy into cashless economy, but in the last few weeks we have only heard of villages and districts being converted to cashless.
But a push towards cashless cannot come without an initiation from the government. It needs to ensure that there are no additional charges for digital transactions and no tax on digital financial transactions services.
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For those who do not have a card or a phone, AEPS is the option which needs to be promoted. For this bank accounts need to be linked to Aadhar. There is a need to promote AEPS-enabled devices by extending benefits and incentives to the merchants who use AEPS.
Rural India has far lower branches per square km compared to urban India. The BC model of banking has successfully worked for over a decade in rural India. BC model can also be adopted in areas where transactions are high like mandis, industrial clusters etc.
The author is director-business services, AISECT. Views are personal