(GIST OF YOJANA) Less Cash India: Vision to Reality [JULY-2019]

(GIST OF YOJANA) Less Cash India: Vision to Reality

[JULY-2019]

Less Cash India: Vision to Reality

Introduction

•  India has traditionally been a cash-based society. This dominance of cash has been primarily due to three reasons -

1. Lack of payment acceptance infrastructure
2. Bank accounts perceived as accounts for savings rather than accounts for payments by a majority of the population.
3. Cash-based payments seem to be zero- cost and hassle-free as cost of cash is distributed and invisible.

Background

•  Till November 2016, only 15 lakh merchants had been enabled with PoS by over 40 banks. This meant that only 2.5 per cent of India’s 6 crore merchants had an option of receiving payments through cards. The remaining merchants had no option but to rely on cash based payments.
•  This changed dramatically with the advent of QR code based payments.
•  Today, there are over 1.2 crore merchants having QR code who give an option to their customers to pay through their wallet or bank account.
•  The QR code based payments have been attractive to merchants as it does not have traditional costs associated with PoS terminals cost of PoS terminal, cost of maintaining internet, maintenance of PoS terminal, high MDR etc.

Uprising of the digital payment system in India

•  India has over 100 crore bank accounts with over 90 crore debit cards. While most households have
•  atleast one bank account, especially after Jan Dhan Mission, the number of customers using bank accounts for digital payments is less than 5 crore. Many people find payment through bank accounts cumbersome and/or risky.
•  Prepaid Instruments (wallets) became a huge hit among these customers as customers could set up wallets easily by authenticating their mobile number.
•  The perceived risk is capped to the amount kept in the wallet, which is separate from their bank account.
•  The number of wallet users has been increasing consistently despite new regulations mandating the need of KYC in a given time frame.
•  The advent of UPI has simplified use of bank accounts for payments for people who are comfortable to pay directly from their bank accounts.
•  Overall, wallets and UPI have been leading the growth of digital payments in addition to traditional modes like net banking, debit card and credit card.
  Improving infrastructure
•  Cash has an inherent benefit of being universally accepted and instantly usable. However, there is a cost of cash in the form of expensive cash management infrastructure.

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•  Cash management infrastructure includes cost of printing cash, bill collection centres for utilities, network of ATMs and cash deposit machines, cash in/cash out counters in banks etc.
•  Transitioning to digital payments will lead to significant reduction in costs due to inefficiencies associated with cash. Further, cash is anonymous and once you have parted with it, there is no trace visible in the system. Contrast this with digital payments, which leaves a footprint across the ecosystem and is traceable. With regard to security of digital transactions, there are 2 aspects - one is the technology aspect and the other is financial literacy of users.
•  With emerging technologies such as Artificial Intelligence and Machine Learning it has become safer to do digital payments. At the same time, technology is evolving so that any patterns for hacking/cyber-crime are quickly understood and preventive measures taken in order to prevent spreading of such crimes.
•  With regard to financial literacy, the Indian Government has undertaken several campaigns in this regard. Users are being made aware about maintaining the security of their hank accounts, keeping strong passwords which are difficult to guess, not sharing one time passwords (OTP) etc.
•  The Indian Government should encourage innovation in digital payments. There should be a push for increasing digital payments acceptance infrastructure - and not for any particular mode of doing the same.
•  The entities in the digital payments space should be given freedom to enable merchants to accept digital payments in whatever way they deem fit be it wallet, UPI or any other new innovation which can scale up the number of merchants accepting digital payments even further.

Way forward

•  The key to propagating digital payments is to ensure trust in the system - both from the customer as well as the merchant.
•  Trust can be built by ensuring transparency of cost and charges for digital payments along with timely grievance redressal, along with customer / merchant education and awareness.
•  The banking and financial services industry under the guidance of the Indian Government has taken several measures to build trust and a lot more needs to be done.
•  Certain with constant innovation in technology and increased awareness about digital payments, time is not far when this trust factor truly enables the realization of the vision of less cash India.

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