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Road Map for A Smarter,Digital and Cashless India

December, 2018

Roadmap For A Smarter, Digital, And Cashless India

Yogesh Dhingra, Former CFO & COO, Blue Dart

Digital payments in India are set to reach $1 trillion by 2023, according to a report by Credit Suisse. Digital payments in India currently aggregate less than USD 200 billion, of which mobile is still at just USD 10 billion in financial year 2018E (estimated). It is estimated that the total digital payment market in India will grow to USD 1 trillion by FY23 led by the growth in mobile payments. An important driver of this growth is India’s vast smartphone user base – the second largest in the world.

The Indian economy has traditionally been dominated by cash. However, the increased adoption of smart phones together with a favorable regulatory environment are pushing the economy to a less cash-dependent state, and promoting the usage of digital and smart card payments.

Demonetization of INR 500 and INR 1,000 currency notes and the subsequent policy measures taken by the Government of India (GOI) and the Reserve Bank of India (RBI) have provided further impetus to digital and card payments. Credit Cards and Smart Cards have become the most common forms of payment for e-commerce transactions.

Smart cards are highly secure and are used worldwide in applications where the security and privacy of information are critical requirements. India's central banking institution, the Reserve Bank of India (RBI) had directed banks to issue smart debit cards in 2013, replacing magnetic strip cards, as smart cards require PIN to authorise purchases. The key here is to keep technology at the forefront and harness it by integrating with core offerings and security to provide a best-in-class experience to the users. Given the advantages of going cashless and advancements in innovative technologies, India is also striving to become a digital economy with an aim to transform itself into a digitally empowered society and knowledge economy.

India's central banking institution, the Reserve Bank of India (RBI) defines Digital transactions as transactions in which the user authorizes the transfer of money through electronic means, and the funds flow directly from one account to another. These accounts could be in banks, or with other entities/service providers. These transfers could be done through means of smart cards (debit/credit), mobile wallets, mobile apps, net banking, Electronic Clearing Service (ECS), Electronic Fund Transfer (EFT), immediate Payment Service (IMPS), or other similar means.

Over the years, the RBI has been focusing on technology-based solutions for the improvement of the payment and settlement system infrastructure, coupled with the introduction of new payment products by taking advantage of the technological advancements.

Smart Cards offer users more security, convenience and control than any other payment methods. The wide variety of cards available - credit, debit and prepaid offer enormous flexibility to the people. Visa, MasterCard and RuPay cards are some of the examples of smart card payment systems. These cards offer the people the power to purchase items from stores, Internet, through mail-order catalogues and over the telephone. They save both customers' and merchants’ time and money, and thus enable them with ease of transaction.

Smart Cards can be used widely through ATMs and also various Mobile Point of Sales (MPOS). The Mobile Point of Sales (MPOS) mechanism changed the dynamics of the e-commerce business in India. Using mobile-based GPRS connectivity to facilitate debit/credit card payments, it overcame the inherent risk of fraud, counterfeit, mutilation and theft that usually tend to increase the operational cost of a company in the Cash on Delivery (CoD) model.

Further, to reduce the risks arising out of the use of credit/debit cards over internet / Interactive Voice Response (IVR), wherein transactions are carried out over the telephone, the RBI mandated that all Card Not Present (CNP) transactions should be additionally authenticated based on information not available on the card and an Online alert such as OTP should be sent to the cardholders for such transactions. Such authentication processes ensure smooth flow of money digitally, further encouraging Indian users to use Smart Card, who were once hesitant to use any payment method apart from cash.

Digital wallets and mobile payments are also steering us towards a cashless world where payments can be made quickly, conveniently, and securely with just the tap of a button. Digital wallets and mobile payments are rapidly evolving in order to enhance the experience for both customers and business owners. That means that they’re going beyond simply transferring funds electronically or swiping your smart phone over a checkout terminal.

Paytm recently introduced Payments Bank, India’s only mobile-first bank with zero balance - zero digital transaction charge accounts. Payments Banks are a new set of differentiated banks introduced by the RBI with the aim of extending deposit and payments services to millions of unbanked and underbanked Indians.

The new WhatsApp Payments feature allows users to send and receive money has already been rolled out widely. India is among the first markets to get the new service. The payment feature has been built using India's Unified Payment Interface (UPI).

Transactions through UPI have received a major stimulus from the Narendra Modi led government. UPI is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood. It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per requirement and convenience. Each bank provides its own UPI App for Android, Windows and iOS mobile platform(s).

BHIM is a UPI based payment interface which allows real time fund transfer using a single identity like your mobile number or name. BHIM is an application that lets you make easy and quick payment transactions using UPI. Google Tez uses UPI (Unified Payments Interface) and works with all major banks. With Tez, users can pay directly from their bank account and there’s no need to open a separate account or worry about reloading wallets.

Over the last few years, the Government of India has taken copious pre-emptive measures to explain, establish and encourage the use of Smart Card payments in various sectors of the Indian economy. The launch of Digital India is a major thrust to the Indian economy. Truly, “Faceless, paperless and cashless”.