1. Digital India: Rather than pushing e-modes, Narendra Modi govt should let consumers choose

Digital India: Rather than pushing e-modes, Narendra Modi govt should let consumers choose

On November 8, India’s prime minister announced that old R500 and R1,000 notes would no longer be legal tender.

Published: December 27, 2016 6:38 AM
Digital India, Demonetisation, Cashless Economy, eTransactions, Jan-Dhan Yojana, GDP, Online Banking On November 8, India’s prime minister announced that old R500 and R1,000 notes would no longer be legal tender. (Source: IE)

On November 8, India’s prime minister announced that old R500 and R1,000 notes would no longer be legal tender. Perhaps sensing the mayhem likely to be unleashed, RBI had exhorted citizenry to go digital as early as November 12, with the following missive: “… public are encouraged to switch over to alternative modes of payment, such as pre-paid cards, Rupay/Credit/Debit cards, mobile banking, internet banking. All those for whom banking accounts under Jan-Dhan Yojana are opened and cards are issued are urged to put them to use. Such usage will alleviate the pressure on the physical currency and also enhance the experience of living in the digital world.” As unending serpentine queues have continued, the government has since taken over the baton of “#IPaydigitally”.

Which brings us to ask—are we digitally ready? But before that, is cash so bad? Well, in Japan, more than 101 trillion yen ($966 billion) of cash was circulating at the end of October 2014 (20.07% of GDP). It was used for more than 80% of transactions by value in 2014. In Hong Kong, cash is still king at 15.67% of GDP. Russia and Eurozone report cash in circulation at 12.33% and 10.39%, respectively. Compared with these figures, India does not look so bad with a cash-to-GDP ratio of 11.55%. The trouble with statistics is they can make anyone look good or bad; for example, Kenya is known to transact digitally to the extent of 60%, quite like Sweden and Singapore (one of the most digital payment friendly countries). But Kenya’s similarity with these economies stops right there.
At any rate, digitally savvy nations are not the norm.

As per MasterCard and Visa, consumer payments in cash account for 85% of transactions globally. So why are Indian consumers, with our kind of socio-economic demographics, being pushed towards digital payments? Honestly, it seems as a knee-jerk reaction to the cash crunch facing India.

Understanding both, the anatomy of consumer payments and malaise of black money affecting India, are very important for a coherent strategy. The establishment must realise that a majority of India’s population faces a digital challenge, particularly when it comes to setting up complex apps, logins, passwords, IFSC codes and OTPs. RBI statistics for the year 2015-16 are very revealing. M-wallet transactions stand slightly over 61 crore, representing a transaction value of only R20,584 crore. In comparison, 195 crore transactions took place via credit cards/debit cards at PoSs involving a value of R3,99,589 crore. The lesson here is—different strokes for different folks (aka transactions). India knows how to swipe and will take to m-wallets, NUUP and UPI as and when it feels comfortable.

More so, the malaise of black money cannot be cured by preventing consumer payments in cash. The problem lies elsewhere and mostly with B2B transactions. A coherent strategy for attacking generation of black money, while boosting financial inclusion, lies in making it compulsory for businesses to pay their workers’ salaries by NEFT; and mandating all business payments over R20,000 digitally. Once this step is taken there will be many spin-off benefits, including protecting industrial workers with improved traceability of employment, as well as accurate recording of production and sales turn over. Eventually, this will lead to reducing “off the books” business and cash generation.

A coherent strategy for encouraging digital payments has to start with a detailed sectoral behaviour analysis, providing frustration-free connectivity, friction-free apps tailored for particular ecosystems. There is no one-size-fits-all approach. For example, the e-commerce boom has led to sky-rocketing of digital payments (including online banking). Yet, India leads with cash-on-delivery as the most favoured mode of payment. This trend is not so due to absence of knowledge, but more due to reasons of comfort and lack of trust for redressal of consumer grievance.
An inspiring example of building an entire ecosystem for digital payments can be found in Hong Kong and the ubiquitous OCTOPUS card. The technology uses NFC and the chip in the card acts as a store of value. It has come to be used in the MTR (metro), taxis, trams, buses even ParknShop and 7-Eleven stores. One could spend a month living in Hong Kong without reaching for the wallet. Such successful systems need regulatory enablement, vast payment infrastructure and can only proliferate because of private sector’s ingenuity.

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In our quest for finding a quick fix for a transitory cash crunch, India is ignoring the basic prerequisites for a digitised payment system. We cannot disregard inadequate levels of digital literacy or lack of connectivity; we cannot ignore global consumer behavioural trends; and we cannot afford to overlook the need for setting up cybersecurity standards that private payments service providers should follow. In fact, we need to focus on the need for providing regulatory and fair revenue models to consumers, banks, PoS service providers and other digital payment service providers, so that facilities gradually and reliably proliferate with sustained consumer uptake. Replacing globally tested private sector business models by means of a temporarily hyper-active public sector will not see top class services like NUUP and UPI succeed. (USSD transactions for the month of November 2016 are reported by RBI at a mere 7,000.)

There is a long-standing dictum—consumer is king. Let the consumer decide when and what he would like to pay for digitally. Meanwhile, let the government do what it can best—provide us with an enabling regulation to best use technology suitable for each subsystem, whether rural or urban, whether for the technologically savvy or digitally illiterate. And while going down this road, the government would do best to remember that state monopolies are never efficient. NPCI must welcome technology partners and commercial solutions for an improved NUUP and UPI.

By- Uddhav Kumar

The author is a freelance e-commerce research analyst

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