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With the lockdown last year, India witnessed an unprecedented shift to digital transactions. Yes, digital payments have spiked earlier — in 2017, for instance — but this time, it’s different.
This time round, people have cash, but are choosing to go digital, driven not by cash-back or reward points, but the fear of physical contact with virus carriers. Millions of people are opting for low-contact processes, from ordering online to no-touch delivery and digital in-store payments.
With many countries raising transaction limits for contact-less payments, governments are encouraging citizens to go digital. The RBI has waived transaction limits on contact-less cards, with tap and go enabled for up to ₹5,000.
The demand for ‘contact-less commerce’ is here to stay and has pushed service providers to innovate. During the lockdown, restaurant aggregator platforms expanded into groceries and essential goods deliveries, with a fully digital, contact-less purchase-to-delivery model. There was increased digital adoption among small and local businesses, as simple mobile phone software allowed neighbourhood stores to go online overnight.
In most localities across the country, it has become the norm for kirana stores and pharmacies to connect with residents through mobile and accept digital payments. Online shopping platforms, which earlier had most of their sales paid for via ‘cash on delivery’, have moved completely to contact-less digital payments.
Spending funds digitally
Digital payments have also played a critical role in financial inclusion and social protection during the Covid-19 crisis. The Central government sent nearly ₹90,000 crore to vulnerable communities via Direct Benefit Transfer (DBT) during the nationwide lockdown. In Italy and Australia, prepaid cards were used to transfer disaster relief funds to those without formal bank accounts for access to cash as well as essential purchases.
In South Korea, policies to incentivise the adoption of digital payments have resulted in greater transparency in the economy by bringing more businesses under the tax net and reducing cases of fraud and under-reporting. A similar opportunity exists in India to widen the tax base and increase GST collections through policies that stimulate both the demand for and supply of electronic payments infrastructure.
The past few months have seen an upsurge in low-value transactions in India’s cities, as consumers began to rely on digital payments for cheaper goods and services including essential produce. Online commerce grew outside the metros, with Tier-2 cities and smaller towns now contributing 66 per cent of e-commerce demand in India. To drive this kind of behavioural shift across the country, it is critical for all categories of merchants to have access to the infrastructure and networks required for accepting digital payments at the point of sale.
Not every merchant can afford an expensive point of sale (PoS) terminal, or will have the sales volumes to justify it, or the electricity to power or charge it — take street vendors, for instance. But, they need to accept digital payments too. Fortunately, there are alternatives: from smaller, cheaper terminals, to low-cost, interoperable QR codes, which the RBI has asked all payment system operators to migrate to by 2022.
And now, mobile-based acceptance solutions will allow a street vendor or small shopkeeper to accept digital payments, as long as he/she has a smartphone with an NFC chip (available on over 500 smartphones starting under ₹5,000). Small businesses also want quick and easy payments, and there is a case for allowing wider choice there — including account to account alternatives, and card to card payments.
The ₹500 crore Payments Infrastructure Development Fund proposed by the RBI is an important step to encourage deployment of PoS infrastructure in tier-3 to tier-6 centres and the North-Eastern States.
The regulatory and market environment in the country has the potential to see India through to its next level of digital transformation.
The writer is Division President, South Asia for Mastercard
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