India is witnessing a surge in digital payment, backed by government reforms and initiatives after high-denomination currency notes were discontinued in early November.
As people are pushed to adopt new payment patterns in face of shortage of notes in circulation, India is increasingly going digital post demonetisation. The use of cash is being discouraged and what was initially a reform aimed at tackling the problem of black money has now turned into an opportunity for the government and its various agencies to take the country towards a digital transaction environment. Banks and other financial service providers have also joined in to promote cashless transactions.
Use of the Unified Payment Interface (UPI), debit and credit cards and mobile or electronic wallets alongside other measures are being pushed by both government and private players, as part of the move towards a cashless economy. Indian Prime Minister, Narendra Modi shared in his public address on Sunday, “This is correct that a 100 pc cashless society is never possible. But we can make a start with a less-cash society, then cashless society will not be a far-off destination,” while also appealing to the youth to aid the country by teaching 10 families daily on how to conduct cashless transactions through mobile applications, mobile banking and debit or credit cards.
With extra rates for such transactions waved off for the payee for a limited time by both banks and several digital payment platforms, the government is hoping to encourage citizens towards digital payment. Banks charge a commission to merchants who use Point of Sale (PoS) machines to enable card payment, and at times this get passed to the customer who end up shelling out a 1-2 pc additional charge on card payments. With an expectation of one million PoS machines to be added in the coming six months to the existing 1.5 million machines, it remains to be seen whether waiving off these fees can be sustainable for a longer term. Digital payment platforms have also followed a similar scheme and big player Paytm has decided to slash its user fees until the end of 2016, which usually ranges from 1 to 4 pc. MobiKwik, another digital payment platform that is growing in size has waived off fees until March 2017.
Rise of mobile wallets
These platforms, primarily used to pay for mobile recharges and utility bills, are now expanding to toll plazas, petrol pumps and other places, becoming viable alternatives to cash for smart phone users with a stable internet connection. Paytm, which is backed by Alibaba Group Holding Ltd, a massive Chinese internet company, is one such digital payment company. It has claimed that its platform saw over 35 million transactions for recharge of mobile and DTH services.
“Paytm has registered a strong surge in online recharges on its platform post the government’s move. Millions of new consumers across the country have adopted digital, cash-free recharges and bill payments for the first time,” shared Paytm Senior Vice-President, Shankar Nath. The company has added 700 sales representatives since the announcement of demonetisation to keep up with the growing usage of its services.
Government steps in
The government of India has stepped up in promoting and upgrading several projects that are specifically aimed at moving towards a cashless transaction space in India, with a special committee formed to look into digitising government-citizen transactions. National Institution for Transforming India, a policy think tank established by Modi, will have its CEO Amitabh Kant, leading the committee.
The National Payments Corporation of India (NPCI) is also taking steps to promote the UPI platform that was launched earlier this year, which involves direct transfer of money between two accounts through a mobile application. Announcing a separate initiative, the CEO of Unique Identification Authority of India (UIDAI), which is responsible for the Aadhar card system, Ajay Bhushan Pandey said, “Aadhaar was working on a common platform that could be used to conduct transactions across banks. Even as a merchant would need a smart phone, a customer can make payments with just the Aadhaar card number and one of his two biometrics – fingerprint or iris scans.”
Even as the government has shown enthusiasm in transforming the payment habits of the country, for consumers, security and privacy remain an issue. India remains an economy that runs on a staggering 86+ pc on cash. Electronic literacy is also low in the country. The Reserve Bank of India usually sets security and privacy standards for banks in the country but the various digital wallets fall under the category of Non-banking Financial Corporations (NBFCs), excluding them from these standards. Another issue is the poor internet connectivity as well as smart phone penetration, which stands at a mere 30 pc in rural areas, according to CyberMedia Research.
Even on the face of such concerns, some believe that the demonetisation move has been the much-needed thrust to modernise the economy of India, coming as an opportunity to address these problems.
— Deepa Malik (@DeepaAthlete) November 29, 2016
A large number of citizens have, however, criticised this move as they allege government insensitivity. Many believe that cash is the only option for those who are illiterate, yet to be registered bank account holders and are left without the adequate resources to use smart phones and cards.
‘If you have no paper, then use plastic’ – this is #ModiAntoinette! Reminding us of Marie Antoinette’s’if you have no bread then eat Cake.’
— Maulin Shah (@maulinshah9) November 16, 2016
Another citizen spoke of additional costs, which has not been acknowledged by those advocating digital payment.
To go digital, I need a smart phone, a data pack, a reliable network and pay bank & e-wallet fee. What is the cost of transacting in cash?
— ArunaUrs (@Arunaurs) November 29, 2016