Sabse Bada Rupaiya: Challenge of Gaining Trust in Digital Cash
The challenge in moving to cashless society will be building trust in digital currency, writes Prabal Basu Roy.
After the highly polarised debate on demonetisation, it is time to move forward and acknowledge the reality. Given the current political narrative on digitisation, it is highly debatable whether such government-enforced digital disruption was indeed necessary to influence migration to a cashless society: but it may be worth analysing the framework necessary to ensure its success.
Regulatory push for financial inclusion has been a common theme across developing countries including China, Bangladesh, Kenya, Uganda, Venezuela and Philippines, with large, low-income masses outside the formal banking sector.
India and China have a unique advantage, as both have vibrant ecosystems for technological innovation, which is a crucial leg to address the supply-side economic challenges of financial inclusion.
China is, of course, far ahead in building sheer scale in mobile payments with the likes of Alipay and Tencent. India’s challenge will be to design business models built for scale like Alipay and Tenpay which controls 70 percent of the Chinese market.
Building a Trustworthy Digital Platform
On the technological innovation front, I believe our ecosystem is sufficiently well-funded and has the depth of talent for entrepreneurial fintech ventures to flourish and create services to prompt rapid adoption of digital payments like M-Pesa in Kenya and bKash in Bangladesh.
For example: ToneTag, a young start-up, launched a payments solution last week based on a toll-free number, enabling rural customers without internet access to use phones to send and receive money by means of an IVR-based service. A simply brilliant product for the largely internet-starved population without smartphones!
Safety, acceptability, access, and simplicity (SAAS) will determine the success of this massive transition to digital payments… transacting should be as simple and safe as making a call!
The key impediments to migrating the large, 90 percent cash-reliant population across India (currency in circulation being 12 percent of GDP vs 3-4 percent in other BRICS nations) to a digital ecosystem are threefold: the lack of an all-pervasive digital infrastructure; building the two-way “trust” in digital currency akin to cash; and a low percentage of women (17 percent) with access or ability to operate in the online world.
Ifs and Buts of Cashless Economy
In terms of infrastructure, reliable connectivity is a huge problem even in the cities and, despite the Telecom Minister’s involvement, not much improvement is seen on the ground. The investments required to expand access across the country thus look difficult to achieve in the medium-term.
Besides, internet access is restricted to about 30 percent of the population, of which the urban populace accounts for 70 percent. In any currency exchange, this skew can adversely affect the exchange as the ability to transact must be similar on both sides for it to be an acceptable medium capable of inspiring mutual trust and confidence.
Efficient Payment Gateways
On the positive side though, our public payments and settlement infrastructure is amongst the most sophisticated globally, thanks to NPCI (National Payments Corporation of India) successfully leapfrogging India to a safe, efficient, inter-operable and inclusive payments infrastructure. The United Payments Interface (UPI) and the feasibility of using the Aadhar-based infrastructure as the authentication backbone for secure transactions are its key outcomes.
UPI is an open API (Application Programming Interface) that allows banks to implement phone-to-phone payment transfers directly from bank accounts. This will potentially transform all 1 billion-plus mobile phones into electronic wallets with wide usage, from peer-to-peer transfers, to grocery store payments, to migrant worker remittances, etc.
“Trust” in the digital payments system can only be built through mass adoption, which in turn depends on trust. A classic chicken and egg situation! Similarly, women who control household expenditure will need to have access to, and become comfortable with operating internet-based services. Both will need focus and heavy expenditure whilst simultaneously educating the masses on the benefits of electronic payments.
Banks did not invest in this activity all these years to prevent cannibalisation of their revenue streams from their legacy businesses with VISA, Mastercard, etc.
With payment bank licenses recently awarded to telecom players, I am now hopeful they will lead the push for mass adoption of digital payments like the Safaricom-Vodafone combine in Kenya. Similarly, using the existing reach and credibility of the post offices and RBI-registered last mile business correspondents in rural India would be a wise option.
Scandinavian countries are global leaders in this international transition to a less-cash society. Its last mint will have closed by next week. The Danish central bank has stopped printing bank notes. Launched in 2013, Dankse Bank’s MobilePay is a runaway success in the entire region and 50 percent of the population uses it for regular P2P transfers. Whilst our learning from this experience will be useful, our society being much larger and less homogeneous will have to overcome its own unique challenges.
Gearing Up for the Change
We are at the confluence of four tectonic shifts in our landscape: regulatory push, a fintech revolution, ubiquitous mobile penetration, and the emergence of a broad-based, secure financial transaction infrastructure. Add to that a determined PM as the principal evangelist for digital payments (and not mega global payment players or mobile wallet insurgents) who has precipitated disruption on a scale with no parallel in history. This can potentially overcome the deep historical barriers to financial inclusion, if the above impediments are remedied soon.
Ultimately, this is a massive change-management exercise: imposing a radical shift on the nation’s deep-seated payment habits by driving behavioural change. Though challenging even in structured organisations, I am hopeful that, albeit underprepared, we will succeed as a nation… provided a dedicated leader is assigned to drive it like Nilekani did so successfully for the Aadhar program.
Though opinion is divided on this hypothesis, none of us would want to be on the wrong side of the final outcome five years later.
(A Sloan Fellow from the London Business School and a Chartered Accountant, the writer presently manages a PE fund and has formerly been a Director and Group CFO in various companies. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
Subscribe To Our Daily Newsletter And Get News Delivered Straight To Your Inbox.