The payments banks’ wish for the Budget is that the government should make digital payment system less expensive than cash by giving incentives to both the transacting parties or levying transaction charges on all cash payments—to start with, for taxes and government receipts. It is time that digital payment is made mandatory for transactions above R10,000
By Gitanjali Mishra
In 2016, the entry of new entities and new technology will continue in the banking space. While Bandhan Bank and IDFC Bank have entered, small banks and payments bank are going to feature very soon, too. The business models and potential of the two new banks and the proposed small banks are believed to be predictable—so, the excitement of leaping into the unknown is being associated with payments banks.
These banks are saddled with regulatory stipulations like:
1.No mandate for building assets portfolio outside government securities,
2.Individual accounts balance—savings bank and current account—capped at R1 lakh,
3.No permission to offer clients fixed or recurring deposits, and
4.Mandatory rural presence, among others.
On the face of it, the challenge looks daunting as the restrictions are perceived to be bottlenecks for customer acquisition as well as building a sustainable business model. What lies beneath this challenge is that, for these banks to be sustainable, they have to build, operate and share payment systems. The next chapter of the financial inclusion script will be written by these new players, as they will enable the ecosystem for digital payments through mobile wallets.
Mobile will be the new bank and physical market-place—kirana shops, coffee shops, eateries, schools, etc—that are yet to experience digital cash, will become acceptance points in this system. Will it be feasible to move cash-loving Indians to digital payment? Changing spending behaviour will be indeed an unenviable uphill task.
The size of the large untapped market for digital payments is huge. Ninety-eight percent of the transactions in our country happen in cash. Only 10% of Indians above the age of 15 have made payments through debit card as against 40% in South Africa. RuPay cards issued as a part of the Jan Dhan Yojana have not changed the payments landscape.
By 2018, globally people in the age group of 16-24 will spend more time on mobile than all other devices put together. Mobile is the future of everything. The growth of wallets and cards should prompt cash consumers to move to digital payment. Payments banks will have a large role to play. Apart from customer acquisition, payments banks will be creating new merchants ecosystem, new ways of facilitating digital cash acceptance systems like m-POS, mobile-to-mobile transfer.
Apart from creating a dent on the CASA deposits of the legacy banks, more so in rural/semi-urban areas, the payments banks will also be aggressive in the small-value migrant-labour remittance areas, thereby eating into the share of traditional banks, unorganised remittance channels and the PPIs. Bill payment, utility payment, mobile top up and recharge will be their other stream of income. A more interconnected market place linking consumers to biller through the mobile/wallets will change the way Indians pay.
The Jan Dhan Yojana has achieved one large objective of financial inclusion—every family having at least one bank account. The last man is linked to the financial market place through RuPay card and an Aadhaar-enabled payment system. At present, electronic payment of MNREGA wages/ other subsidies or wages through a bank account is converted back to cash immediately. This is a huge cost to the banks and the customer. The smaller the ticket size of the transactions, the bigger is the cost to the banks. Digital transactions will reduce the costs substantially. Moving the entire cash-driven ecosystem to the digital platform will achieve financial inclusion in the real sense as the last person also will become part of the payments system.
Weaning away Indians from cash is going to be one uphill task. As per the USAID survey report, current users of debit cards, mobile wallets and online bank transfer are highly satisfied with the system for the convenience and safety they offer. In contrast, the non-users exhibit low awareness or if aware, show very little interest. Similarly, on the merchant side, though the merchants who are accepting digital cash are highly satisfied, non-accepting merchants show very little inclination to move to the digital platform.
RBI as well as banks spend huge resources in managing currency circulation. Part of this expenditure can be reduced by promotion of digital payment systems and rewarding entities who play vital roles in this space.
Policymakers have a crucial role in weaning away both consumers and the merchants—small or big—from cash, moving to lesser cash usage to start with. The payments banks’ wish for the Budget is that the government should make digital payment system less expensive than cash by giving incentives to both the transacting parties or levying transaction charges on all cash payments—to start with, for taxes and government receipts. It is time that digital payment is made mandatory for transactions above R10,000.
Additionally, in order to get small merchants on board the payment systems, interchange should be minimal. Investment by banks, payment banks, wallet issuers, aggregation service providers, IT and transaction security providers, etc, will pay back only if policy for digital payments are in place.
As the saying goes, Rome was not built in a day. Similarly, the digital money architecture will not be built in a day. But, for a country tipped to be the fastest-growing in FY17, the time has come for a shift to digital payment!
The author is general manager, Payments Bank Initiative, State Bank of India.
