Nandan Nilekani, who is tasked by the RBI to look at digital payments and financial inclusion, faces a herculean task in getting users in smaller towns to trust digital payments and, on the other hand, convince merchants to accept digital payments.

For Ijaz, a vegetable seller, doing business on an average of ₹6,000 per day, digital payments is a bit of an enigma. “Companies like Paytm, Amazon, PhonePe and others ask me to accept payments digitally. But when I ask them whether I can take money out of these wallets and use it where I want, they say it is not possible,” he said.

Ijaz’s dilemma is a larger reflection of the kind of challenges merchants face when it comes to digital adoption, which is translated into forced usage of cash amongst customers.

This problem, in industry parlance, is called an interoperability issue. For the consumer, there is no freedom to choose; for the merchant there are problems of costs associated with a Point of Sale (PoS) terminal, in addition to payment not getting reflected in their bank account in real time and for the government the cost of cash.

Lack of infrastructure

PoS infrastructure in India is woefully low in comparison to global standards. “Incentivise the payment PoS manufacturer in India to increase PoS base through local manufacturing,” opined Rajesh Desai, CEO & Director, Lyra Network India, a part of the French payment solutions company.

Digital payments have witnessed an increase after demonetisation with wallets and the likes. But, industry watchers opine that while usage of digital payments has gone up, usage of cash continues to show no signs of slowing down. One of the things Nilekani needs to look into is to build more trust in digital at a time when a spate of cyber attacks are on the rise deterring people to transact online.

“In India II, the perception of digital payments being not secure needs to change,” said Rama Krishna Kuppa, Founder & CEO, ONGO Framework.

Cyber security threats

In the heart of Bengaluru, iBhaan Digital Edge Advance Solutions, an SME is building a prototype of a product that can help in authenticating know your customer (KYC) processes that banks and NBFCs need to follow. The machine — which looks like a printer — has a built-in biometric authentication to help in meeting KYC requirements for a financial institution.

“Most documents are self-attested and in case of any fraud, the person submitting the documents has the liability. This kind of a device can help in document authentication,” said Badrinath BR, President, iBhaan.

Others like Adhil Shetty, CEO, Bankbazaar, opine that there is a need to review the existing legal framework to address the cyber security challenges arising out of technological developments in cyber space (such as cloud computing, digital payments, mobile computing, encrypted services and social media) and its harmonisation with international standards or frameworks including those related to internet governance.

Also, India should work towards developing bilateral and multi-lateral relationships in the area of cyber security with other countries. The future is digital economy and the demonetisation impact has led to a spring of companies entering this space without the right guards on.

Agrees Rohit Garg, Founder, SmartCoin, a micro-lending company. “The cost of digital transaction needs to be brought down further and along with it frauds,” he said. With the entry of global players such as WhatsApp, the segment is expected to grow five-fold to $1 trillion by 2023, according to investment banking firm Credit Suisse.