Mumbai: The government is examining whether point-of-sale (PoS) terminals can be manufactured in the country as it explores ways to push the digital economy and boost the payments infrastructure in India, says A.P. Hota, managing director & chief executive officer of the National Payments Corporation of India (NPCI). Edited excerpts from an interview:
How do you see 2017 panning out for digital payment systems after demonetisation?
This year will be the year for taking mobile payment systems to new heights, levels which are substantially different from earlier. We have at the back Immediate Payment Service (IMPS), real-time fund transfer and on top of it, UPI (Unified Payments Interface) and Unstructured Supplementary Service Data (USSD). So shortly, we will be launching UPI services on feature phones. Once that happens, even on feature phones, customers can have the facility of saving (details of) their beneficiaries. They can chose from a list of beneficiaries and type the amount and PIN to make USSD-based payments easier and simpler. Fifty-one banks are currently on board to implement feature phone-based USSD. That needs to be scaled up. It should cover 200 banks; only then can regional rural banks (RRBs) and cooperative banks get mobile banking services. Of the 51 banks, all public sector banks, a few private sector banks and a few cooperative banks are using this feature phone-based USSD platform. No RRBs are there on USSD. So, we will have to bring them on board. This is the primary focus of USSD.
Second thing is cards. The card base is now 317 million. Of this, 205 million cards are those issued under the Pradhan Mantri Jan Dhan Yojana and 112 million are mainstream cards. So far, we have noticed that not more than 50 million cardholders have ever used PoS machines. But they have been using the ATM channel. So, our focus is to take people from ATM channel to PoS channel. Our focus is no longer so much on expanding the card base. The card base is already big. We will have to see that the existing card base of customers starts using the cards on PoS channels. Only 50 million RuPay cardholders are using PoS channels, and that too once in six months. We will have to push them to use these cards every alternate day or once a week. After all, every family will have to buy something once a week.
The government has initiated many steps to set up PoS machines across the country. What are the other steps envisaged to expand infrastructure?
As of September 2016, there are 15 lakh PoS terminals, which is a small number. The department of financial services has given a mandate to 25 banks to deploy one million PoS terminals in three months’ time. They have allocated bank-wise. Another initiative is where the Unique Identification Authority of India, Tata Consultancy Services and State Bank of India (SBI) have come out with a solution called Aadhaar Pay. Even IDFC Bank has launched the first Aadhaar-linked cashless merchant solution. In Aadhaar Pay, a smartphone can be turned into an Aadhaar PoS machine, which will have a dongle attached to it. For biometric capture, a conventional PoS device is replaced by a smartphone-based Aadhaar PoS. Manufacturing vendors have been identified. The aim is to provide half of these Aadhaar PoS machines to fair price shops of the government of India. All ration shops will have Aadhaar PoS. Andhra Pradesh government has already started this. Chief minister Chandrababu Naidu has okayed about 1,500 such PoS devices on an experimental basis. Five lakh PoS machines will be set up and funded by the central government. For the remaining five lakh, an option will be given to banks that want to acquire them. Two million PoS machines are likely to be added in the next three months. For Aadhaar PoS, Aadhaar Pay is being launched and they will come out with a target number of PoS machines.
Do you think dependence on cash will return once cash supply improves?
We have the habit of drawing cash from the ATM, going to a nearby shop and spending. We have to persuade people not to use cash. The government’s focus is on building infrastructure. It is also trying whether PoS terminals can be manufactured within the country. They are floating enquiries among public sector undertakings like Bharat Electronics and others on whether they can manufacture the devices within the country. It’s large-scale manufacture. After all, fair price shops have to be provided with PoS terminals. They are working out various methods. Even the dongle for Aadhaar Pay that will initially be imported, may be manufactured here. Aadhaar Pay will show the way as to how rural India can adopt digital.
Do you think PoS terminals can be manufactured in India in this short a time?
Manufacturing companies will have to collaborate with someone for technology and then manufacture in India. This will bring down cost of manufacturing terminals if production takes place in India.
To what extent do you expect the dependence on cash to come down?
In the medium term, dependence on cash should come down. After absorption of currency notes of Rs500 and Rs1,000 denominations, the level of currency in circulation has come down. Currency in circulation, which used to be about 12% of GDP, could be close to about 7-8% of GDP now, around Rs7-8 lakh crore. If we can live with less cash, without affecting day-to-day operations, then we are moving towards a less-cash society.
Who will fund the setting up of these PoS machines?
The government plans to subsidize procurement of Aadhaar PoS and give it to fair price shops. Nabard (National Bank for Agriculture and Rural Development) has come out with a scheme to subsidize PoS machines in rural areas. Nabard will be paying Rs6,000 per terminal. If it costs Rs10,000, they will subsidize 60% of the cost. They want to put two lakh terminals in one lakh villages. Lucky Grahak Yojana is also funded by Nabard. As far as the PoS terminals for fair price shops are concerned, it will be funded by the ministry of food and civil supplies.
Why do you think banks are not promoting UPI and wallets aggressively like Paytm?
Banks have also developed a lot of wallets. SBI Buddy is as good as Paytm but it is not promoted the way the latter is. Paytm is advertising in a big way. It is focused on the product. Banks, on the other hand, have so many things to do. These wallets are not their priority. That is where payment-focused banks are essential.
Do you think wallet companies like Paytm have adequate security measures in place?
There has to be a trade-off between convenience and security. Paytm has managed a good balance. Banks’ systems are more focused on security than convenience. But now the banking system can leverage products like UPI and USSD.
The government-appointed committee headed by former finance secretary Ratan Watal has recommended the setting up of a regulator or regulatory board. What is your view?
In my opinion, this is not a priority to take up at this stage. Even without these changes, within the existing regulatory environment, a lot can happen. I believe the current regulatory structure is good enough. Payments board, which is part of the Reserve Bank of India (RBI), is the right way to move. RTGS (real-time gross settlement) should continue to be with the central bank. RBI has created NPCI-like structures, which is also something unique. This has been working well. RBI is also working on a payment system advisory committee which is yet to be made operational. That should serve the purpose.
A few months ago, the banking system was hit by a cybersecurity breach in ATMs. In the wake of this attack, do you think our system is prepared to undertake digitization on a larger scale?
The system is strong enough. There was a breach in the switching system at the end of the service provider. The interim report has clearly established that there was a breach and banks have taken corrective measures. RBI has issued risk mitigation guidelines, which is good enough. If banks implement these security guidelines in the strictest possible terms, I don’t think there will be a problem.
Do you think that with this government push, RuPay cards will replace cards issued by Visa and Mastercard over the next few years?
The idea is to go cardless. Even RuPay cards will not be there. We will also extinguish RuPay cards over seven-eight years. That said, the mobile-based system is yet to gain stability, while the card payment system is stable and standardized. Banks should push RuPay cards. A big bank like SBI issues RuPay cards only once a week. Rest of the week it issues Visa and Mastercard. If SBI issues RuPay, we don’t have to struggle much. Competition is there because SBI is issuing Visa and Mastercard mostly. If banks provide support, it will be a big push for NPCI. But we cannot pay them like Visa or Mastercard.