India’s strategy of going cashless has its own set of complexities but the country has a six-month window to roll out digital wallets for 750 million people.

Addressing delegates, which included CEOs of start-ups and large companies, gathered at the Carnegie India Global Technology Summit, Infosys co-founder Nandan Nilekani pointed out the challenges that lay in front of regulators and technology providers.

Pointing out the fact that the Indian economy which has been a cash-driven one was a state function — government printed notes, coupled with public sector banks dominate banking transactions. “So far the government played a dual role of owner and policy maker,” he said.

Digital economy

However, in the digital economy the old rules are getting upended as companies charge no transaction fees and make money through data, thereby making efforts to make payments accessible to everybody — a model followed by companies like Google or Facebook.

“Bulk of India’s transactions are kirana-like merchant payments and that has to go cashless, which could get economy on the right track,” said Nilekani, adding that currently this cannot be done as the card system is designed for top-end users.

This development comes at a time when the the central bank lowered GDP growth rate to 7.1 per cent and short-term disruption in economic activities due to demonetisation. Traditionally, the Indian banking system has been high value, low volume but high transaction fees, which restricted the use of cashless payments to rural India.

The former chairman of the Unique Identification Authority of India urged companies in this space to roll out solutions quickly. “In a complex scenario things have come together and we can do things in six months what would have taken six years,” he said.

While India has around 1 billion people registered in Aadhaar, around 250 million people have access to digital wallets currently. “There are 350 million people in my estimate with feature phones and the only way to reach out to them is through USSD technology,” he said. However, there are regulatory hurdles that prevent these new age wallets to introduce products to markets. USSD is a protocol used by GSM cellular telephones to communicate with the service provider’s computers that can be used to make payments, similar to OTP pin.

Policy issues

Nilekani also stressed on the fact that the government needs to be look into certain policy-related issues so that the newer payment systems leave out sections of society. “If you see in China, payment is dominated by WeChat and AliPay. This should not be the case here,” he said.

“Regulation is complicated and some of these issues need understanding,” said Shivnath Thukral, MD, Carnegie India.