Transforming the digital payments landscape

Our country is on a journey to becoming a digital superpower and, over a period of time, we all have realized that this vision of Digital India cannot be complete without digitizing cash-use in our country. A less-cash environment is completely dependent on a robust digital payments ecosystem, which is still at a nascent stage; and that’s the reason most of the retail payment transactions in our country is still in cash.

While this is definitely a long process—to move over 90% of cash transactions to digital—our government has already begun multiple actions on all directions, starting with JAM (Jan Dhan, Aadhar and Mobile), to demonetisation to drive cash out of the system. The same theme continues in another event and was visible in today’s budget speech.

The budget, with the broad agenda of transform, energize and clean India, is a unique melange of measures and has lent considerable emphasis on augmenting economic drivers such as infrastructure, BFSI (banking, financial services and insurance), among others, while accelerating the growth of digital payments which is poised to work as a catalyst to transform our country’s economy.

Measures such as exemption of import duty on all types of point of sale (PoS) devices, introduction of additional 10 lakh PoS terminals by March 2017 and 20 lakh Aadhar-based PoS terminals by September 2017, no service charges on IRCTC bookings and incentivization schemes on digital payments for merchants, along with a ban on cash transactions above Rs 3 lakh will provide a huge boost to the country’s digital payment revolution, as expected by the payments industry ecosystem.

Also, as per the recommendations of the Ratan Watal Committee, creating a Payment Regulatory Board (PRB) within RBI is a great start as it will allow for more representation from payment industry experts in policy making for digital payments while driving a level-playing field for players across the sector. But we believe additional directions towards bringing parity between physical cash and digital payment transactions need to be put in place at the earliest.

Drawing parity between physical cash and digital payment products means several things, including:

(a) Transactions in physical cash and digital instruments should deliver the same value

(b) Process of using physical cash and digital instruments should have similar processes or formalities

(c) Inter operable payments between banks and non-banks

(d) Other points:

  1. In most utility bills or government transactions, the value of digital and physical cash varies as the cost of the digital payment transactions is passed on to the consumers by the government department or utility company. The Economic Survey 2016-17 said Merchant Discount Rate (MDR) or the cost of digital payments should be absorbed by the government which awaits clarity. The costs attached to cash transactions are not visible as it is with digital. The same point was highlighted by an office memorandum from the department of economic affairs a year ago but the same is yet to be implemented.
  2. Even today, single transactions up to Rs 50,000 and in many situations up to Rs 2 lakh and in specific situations, up to Rs 3 lakh can be done on over-the-counter basis without any additional process, documents or any other formalities by consumers or the business entity involved in the transactions. However, for all other digital payment instruments, be it debit/credit cards or prepaid instruments (cards/wallets) all transactions up to Rs 10,000 require just the basic information. Anything above Rs 10,000 and up to Rs 50,000 requires full KYC (know-your-customer details), while a single transaction above Rs 50,000 cannot be done even with full KYC. And then there are other formalities like a copy of the card, ID proof, etc. The system therefore clearly favors cash for the same value of transactions rather than making digital more convenient or at par with cash in terms of user convenience.

For us to become a digital economy, cash is the real competition more than any other instrument. It is provided that single transactions above Rs 3 lakh in cash would be banned. However, the same is still a lot higher than all other digital payment instruments.

Exclusive author column by Mr. Naveen Surya – Managing Director, ItzCash, and Chairman, Payments Council of India