The many virtues of e-cash

It is a globally accepted fact that moving to a cashless economy is good for growth. Several studies have indicated that the adoption of alternative methods for money transfer and payments provides benefits to all actors in the ecosystem – the government and central bank, commercial banks, the industry as well as the end consumers.

In India, such a move will help the government and the RBI reduce operational costs resulting from managing cash and preventing counterfeit currency use. It can also help enhance financial inclusion, check tax evasion and improve collections.

For commercial banks and payment companies, it will help provide superior customer services aligned to today’s digital-savvy customers, while reducing their operational costs. Banks can look at reducing the number of ATMs and launching “cashless” branches that are more focused on providing value-added services to its clients. For payment service provides such as Paytm and Mobikwik, their core business model is based on cashless payments and they will be big beneficiaries of reduction in cash transactions.

For the industry, cashless means increased productivity in retail, greater efficiency in trade processes and faster B2B payments. For the end consumers, the big drivers are better customer experience and conveniences.

Countries such as the Scandinavian group of Denmark, Sweden, Norway, Finland and Iceland lead the world in cashless payments and analysts believe these countries could become completely cashless by 2030. Others like the US, UK, Singapore, Japan and South Korea are not far behind. Can India leap frog and catch up with them?

The Government and RBI have consistently been taking steps towards moving India to a cashless economy.

After the growth of internet banking and payments through NEFT, RTGS and IMPS, the following are some of the recent policy decisions and programs rolled out to help facilitate increase of non-cash transactions:

Pradhan Mantri Jan-Dhan Yojana, which aims to provide universal access to banking facilities for every household.

Banking licenses under new categories such as Payment Banks and Small Finance Banks to improve financial inclusion.

Launch of the RuPay, a new card-payment network at much lower and affordable cost to Indian banks.

Launch of the Unified Payments Interface, which enables e-payments to be made as simply as sending a text message using a virtual identity and mobile authentication.

Launch of the Bharat Bill Payment System, which aims to provide a single platform for all utility bills as well as municipal taxes.

Relaxation of the rules for mandatory PIN-based authentication for card transactions up to ₹2,000 by the RBI, a measure that will allow low-value contactless transactions to be made in a ‘tap and go’ mode and accelerate contactless payments.

Potential tax concessions for businesses and consumers using e-payments over cash.

In addition to the above, the Telecom Regulatory Authority of India (TRAI) is also helping drive adoption of mobile payments. It has recently published a consulting paper on the review of the regulatory framework for the use of the USSD (Unstructured Supplementary Service Data) technology for mobile financial services.

This model for financial inclusion has been extremely successful in countries like Kenya where the m-Pesa mobile money transfer has become the de-facto standard for e-payments.

As the various policy initiatives gather steam, they will need to be supported by a major investment in technology innovation. The good news is that India’s FinTech boom will help provide the innovation impetus needed for this ‘no cash movement’.

The first wave innovation in the space saw companies such as Paytm launch its services and traditional banks launching mobile wallets.

The next wave will be the development of more mature mobile banking options for the rising number of smartphone users and a spurt in contactless payments. As an example, DBS launched ‘digibank’ that allows consumers to open an e-wallet for and then convert to a full-blown savings account with attractive features.

Contactless payments are setup well for their increased adoption at POS (point of sale) terminals in retail outlets, metros, toll booths, parking lots, etc.

Globally, contactless payments are already replacing credit card and debit card swipes. One of the best case studies in contactless payments is the MobilePay app by Danske Bank in Denmark.

More than a 40 per cent of the Danish population use this app for making payments. This is possible because most of the POS terminals are ‘MobilePay enabled’.

Mobile leaders Apple and Samsung are also going global with their payment technologies ApplePay and SamsungPay. After the initial launch in the US, ApplePay is now supporting payment cards issued in the UK, Canada, Australia, France, China, Singapore and Hong Kong.

It is expected to launch in India in 2017. Similarly, Google Wallet is also making further investments in expanding its Google Wallet globally. For contactless payments to become ubiquitous though, it will need a substantial upgrade of POS terminals.

Not only will the number need to increase, they will also need a technology upliftment and become NFC (Near Field Communication) enabled. The RBI estimates India will need 20 million POS terminals as compared to current number of just over 1 million.

This change is happening slowly but surely. Visa recently crossed a major milestone in India with over one million Visa payWave contactless cards issued with acceptance at more than 100,000 merchant locations across the country. Mastercard is also expanding its ‘tap and go’ solution called Paypass in India.

The wearables technology will also help increase contactless payments in a big way. Innovation in markets outside India is seeing contactless payments built into everything from smartwatches to fitness bands to rings to glasses.

Closer home, Goqii has launched a new fitness band with ability to make contactless payments via NFC. This feature is currently available only for Axis Bank customers but should be extended to other banks soon.

So, things look for India to make rapid strides towards the vision of being a cashless economy. We have a proactive government and central bank wanting to drive change and banks and Fintech companies creating innovative and intelligent solutions to implement the change.

One additional step that the GoI and RBI can take to help accelerate this process is to setup an innovation fund. We can learn from the Monetary Authority of Singapore (MAS) which has committed $225 million SGD over the next five years to growing the Fintech segment in Singapore.

The writer is vice-president, banking and financial services, VirtusaPolaris

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