Globally, India lags in terms of transaction volumes and value of cashless transactions. A recent Kotak Economics Research study reveals that while the gross transaction throughput in India ($1.8 trillion) is comparable to that in other major countries, and that the value per transaction ($146) is among its peers, India fares poorly in per capita transaction value ($1,000).
Nevertheless, the report states that India’s transition is “likely to be faster than the current less-cash economies” (such as the UK and Sweden)—if the existing technological advancements are proactively supported.
In this context, the role of regulators in fostering quick adoption assumes great importance. The learning for policymakers is twofold: One, too much regulation on the supply side can be detrimental to the emergence of a level-playing ecosystem and innovation in the payments domain—a case in point being mobile wallets being excluded from the Unified Payments Interface (UPI) so as to allow banks to catch-up to them in terms of services.
Two, there has to be an arm’s length distance between the regulator and any entity operating on commercial grounds providing retail payment solutions—be it prepaid payment instrument (PPI) issuers, Bharat Bill Payment System operating units, white label automated teller machines, or Aadhaar Enabled Payment System (AEPS) providers.
For this, two consumer principles should form the bedrock of a fresh consumer-centric architecture. The first principle is to ensure zero friction in the use of various electronic payment methods. By zero, I mean no hoops and jumps to make even Re1 transaction, including authentication. The second principle concerns incentives/disincentives and proper awareness of multiple modes of payments to get the desired consumer behaviour—substitution of cash. Incentive schemes such as referral bonus for consumers or cashback scheme for merchants accepting digital payments should be devised so as to align different market participants—merchants, payments companies, banks, etc. Growing awareness of unique selling propositions of each mode among consumers will be the key here.
So how does one start translating these principles into a road map?
First, leverage Internet platforms by integrating card and non-card payment options into all-electronic merchant apps, and online and social platforms by default.
Secondly, one early win would be identifying hyper-value transactions that are typical of business-to-business dealings.
In the backdrop of the recent demonetization exercise and the ongoing Goods and Services Tax Network, every unit—from the smallest business (up to Rs20 lakh revenue) to the giant corporation (thousands of crores)—will have to digitize its business transactions with vendors, suppliers, customers and partners, as well as local, state and central government bodies.
Another key thing is to look at e-wallets as cheaper, smoother and more widely accepted alternatives to point of sale (POS) terminals. An open access platform which allows for interoperability among wallet operators (with industry-standard quick response, or QR, code) will give more choice and convenience to users—without any artificial restrictions on usage or favouring a particular stakeholder.
Finally, solutions and methods which are near-household terms, such as BHIM (Bharat Interface for Money), UPI, AEPS, QR code, and other emerging technologies such as sound waves, blockchain and chatbots, and even selfies—all have the potential to disrupt the so-called early disruptors.
However, one should also keep in mind that India is a large country with diverse perceptions, behaviours and idiosyncrasies, and a one-size-fits-all strategy may not work: there has to be a push for a “horses for courses” strategy.
Keen segmentation of customers needs to be done, based on addressing the universe of Internet and non-Internet users, cardholders and non-card consumers, and smartphone as well as feature phone users.
Given the country’s vast population, any combination can easily constitute hundreds of millions of consumers. A conical, three-tiered customer-facing architecture can be devised: traditional cards-based networks (POS, online) at the top end; instant real-time 24x7 systems (bank-to-bank account via Internet and non-Internet channels) at the middle; and hybrid systems (wallets, non-app Internet protocols and non-Internet for person-to-person and person-to-merchant payments), at the base of the cone.
Probir Roy is co-founder of PayMate (India) Pvt. Ltd, an early mover in the fintech space.