By Ravi Aurora
Acknowledging the importance of financial inclusion to create an economic superpower, the government of started a historic movement about two years ago. The bank accounts opened under the Prime Minister’s Jan Dhan Yojna have made it possible for more than 90% households in India to access the banking and financial services.
The next mission now is to build a digital payments ecosystem in the country, which reduces corruption and logistics cost for cash handling, and increases convenience and tax compliance. Therefore, the government has set a target of 30 billion digital transactions in 2018-19.
No other country in this stage of digital payment evolution has laid out such a bold and transformative vision. However, the challenge is to motivate more consumers to use and demand electronic payments and to propel an exponential growth in merchant acceptance.
To fulfil this herculean task, the nation needs more policy interventions. Some of these are:
Break the ice with incentives
Only 5% retail transactions in South Korea are in cash, as compared to 95% in India. This is because the South Korean government provided incentives to both, consumers and merchants to use digital payments. With the right policy measures, the same model can be replicated in India.
The rewards could be both, monetary as well as non-monetary. For example, one factor authentication for all digital payments will make it extremely easy for consumers to transact on the go. Similarly, additional bonus for digital payment of public services like tolls and transport, electricity and water bills, mandis, public distribution shops etc. could encourage many more to join the wagon.
Small ticket transactions (under Rs 200) make about one-third of digital payments. Right incentives to this category will be the key to attract first time users.
Spread the word around
Awareness about safety and security, convenience, and other benefits of digital payments in small towns and villages is a big challenge when it comes to building the culture. Studies by Mastercard suggest that about 60% small merchants in India are still not aware of the benefits of digital payments.
At the same time, 85% of Indians now accept that data breaches and hacks are the new normal and will likely happen to everyone. The more alarming fact is that nearly 78% Indians believe they cannot do much to protect their personal and financial information from being stolen.
Keeping these concerns in mind, we need long-term awareness building campaigns through public-private-partnerships. The reach and trust of government and expertise of private companies go a long way to build trust and awareness about digital payments.
Strengthen the acceptance infrastructure
Merchants are key enablers for acceptance ecosystem. They need a low cost, easy to use, interoperable solution to accept digital payments. Bharat QR, a P2M (Person to Merchant) mobile payment solution mutually derived among NPCI, Visa and Mastercard payment networks is an important step towards addressing this challenge.
Once the BQR codes issued by banks are deployed on merchant locations, user can pay the bills using BQR enabled mobile apps without sharing any user credentials to the merchant. It is a quick and low-cost method, allows merchants to reduce their cash handling cost, and accept payment from almost any digital form- debit/credit card, wallets, internet banking, BHIM etc, directly in their account.
However, the presence of multiple other QR codes often confuses the consumers and hampers the overall user experience. Since BQR is a universal payment method, promoting it as a one-stop shop for acceptance could be a big step towards making India the largest digital payments acceptance destination in the world.
In a country with close to 900 million debit and credit cards, PoS terminals are the key to infrastructure. From 1.5 million PoS terminals in November 2016, we have over 3.14 million terminals in March 2018. However, R Gandhi, former Deputy Governor, RBI believes that to reach the average levels of the BRIC countries, India will need 20 million POS terminals. Terminals can be expensive, particularly for smaller merchants.
While there has been some work in India to overcome this, like the waiving of import duties for PoS terminals, additional measures like Government investment could be the right boost. In several Eastern European countries, including Poland, Romania and Bulgaria, Governments have introduced obligations for all merchants to accept cards when consumers ask to pay by card. Initiatives such as these accelerate the consumer journey from ATM to PoS.
Leverage goods and services tax (GST) as the building block
Over 95% retail payments in India are made through cash. Our cash cash-based has flourished not only for convince and cultural reasons, but also for tax avoidance. However, GST has been a game changer for the economy. It has reduced the incentive to play with the tax and not share bill with the consumers.
As per the estimates of the Confederation of All India Traders, there are over 63 million merchants in the country. Out of these, about 3.03 million have access to PoS terminals and can accept digital payments. As the tax system becomes more transparent and fool-proof, the perceived benefit of cash (tax avoidance) will take a backseat and more merchants will come on-board.
The government has been mulling over providing 2% concession on digital payments of GST along with a simpler process for return filing. Once enacted, this move will increase the tax compliance in India by several notches and take our GDP to the next level.
(Ravi Aurora is senior vice president and group head, Global Community Relations at Mastercard. Views expressed are the author’s own.)
