It’s been 44 days since the government rolled out its demonetisation policy. Since 8 November, I’ve been constantly hearing news reports around the shortage of cash and the need for India to move towards being a digital and cashless economy.
An opinion on going digital
Like the rest of the country, there’s unanimous agreement on the need to go digital. That’s all well and fine. As much as I may be inconvenienced, I have no option but to adapt to it. Quite honestly, it’s what India needs. Digital is clearly the way forward. We’re a young nation. The banking fraternity in India has adopted modern technology. And today, it’s not very difficult to transfer money from one bank to another. Services such as UPI and USSD services also take this convenience to mobile devices. Even without the need for a browser or an internet connection.
The fintech and BFSI (Banking, Financial Services and Insurance) industry would need to scale aggressively to fulfil the demand for a widespread end-to-end PoS network. If it took us close to a decade and a half to build our existing PoS network, how on earth could we go from 15.1 lakh machines to 35 lakh machines in mere months? According to the country’s largest bank, that’s the number of PoS systems India needs. And we don’t necessarily have time on our side. We’re talking a couple of months, if not weeks.
As the popular adage goes, ‘desperate times call for desperate measures.’
The digital journey can be an uphill task…
According to the latest SBI Ecowrap report by the State Bank of India, the usage of debit cards on PoS systems is quite disappointing. A visible trend though is that spending on credit and debit cards at PoS points have been the lowest in November, the same month the demonetisation policy was announced. In October 2016, the average debit card transaction at PoS systems was Rs 1,500 with an average rate of 1.3 transactions per user per month. Roughly put, we’re talking of a couple of thousands spent every month by the average Indian.
To be fair, October 2016 isn’t the ideal reference point for average spending due to the festive season. Diwali is the largest festival in India, with massive deals offered by brands – online and offline. Similarly, in terms of spending, November is typically a dull month. Irrespective of whether demonetisation was announced or not, November has a higher probability of seeing reduced spending. This is a trend that’s visible in the Medianama Digital Payments report for data in 2015. Although credit card spending peaked around October-November 2015, it also fell drastically in the December 2015-January 2016 period. Credit card sign-ups showed a negative trajectory in November 2015.
…but it’s here to stay
If, indeed, India needs to catapult itself into a digital economy, then we must get the industry to push itself on full throttle. NCR is one of the largest names in the business of ATM cash dispensers, transactional processing and payments. According to Navroze Dastur, Managing Director, NCR India, “Digitalization is a great initiative but there are some fundamental problems in getting rural India, which is 60 percent of the country’s population, to change its mindset and go from years of using cash for all basic transactions to completely digital. In a country with 98 percent cash in circulation, electronic payments replacing cash will not be easy and will take real good time.”
Whether we like it or not, digital is here to stay. It’s time Indians – consumers and merchants – adopted digital transactions.
Dastur adds, “Full-fledged digitalization is cashless transaction on a daily basis and requires complete integration of telecom infrastructure, broadband, mobile, digital identity, etc. Efficiencies have to be brought in the processes and it needs to be much faster and transparent; only then does it make sense to be called digital. People are used to paying in cash so much that for them to shift to a new mode of payments requires a major change in mindset and habit, which will need time.”
Commenting on the evident gap in our nationwide PoS network, he comments, “The current POS network is around 15 years old so technically it took us 15 years to reach the 1.5 million numbers due to stiff resistance from merchants in the early years. We see faster adoption now with the government push, and anticipate to reach the 2.0 million mark in the next few years.”
If getting to 1.5 million PoS terminals took us 15 years, then it’s quite a challenge expecting India to add 2 million terminals over the next 4-5 weeks.
The answer to all problems – mobile
According to Manish Patel, founder and CEO, mSwipe, there is huge potential in the POS market, and specifically for mobile POS terminals, which he considers “more invincible compared to the traditional POS terminals.” He attributes this to the number of small and medium size merchants which form a base as large as 20-25 million, but the network of existing POS terminals are clearly lagging far behind.
The Ecowrap report states that on an annualised basis, the debit card transactions are around Rs 24,000. The key recommendation by the State Bank of India is to incentivise the use of debit cards. According to SBI’s estimates, there are 74 crore debit cards in India. It seems like a surge in demand for PoS systems is only limited by the lack of a solid digital infrastructure and general lethargy towards adapting new technologies. SBI believes that there need to be incentives for digital transactions so that these 74 crore cards could be used across India’s network of PoS systems – be it large-format retail, critical healthcare services such as hospitals, or urgent travel such as airports.
In markets such as the United States, innovative services such as Square by Twitter CEO Jack Dorsey enable last mile merchants and even street vendors to accept digital payments via a mobile phone. If India has to meet the expectations set out for it, then mobile PoS systems would be the most efficient and effective deployment strategy.
Besides, tax concessions for going digital would be a good way for incentivising the move to digital and plastic money. SBI recommends the introduction of a separate section like 80C for the much needed support in transitioning to a digital economy. According to SBI, India needs to expand from 15.1 lakh to 35 lakh PoS terminals. Although digital transactions bring in an element of convenience and swiftness, it also has an element of security that bears mention. According to Dastur, if things go wrong, “millions can lose money in seconds. A single hack can ensure millions of accounts being compromised, as it happened in October when 3.2 million card details were stolen in a malware-related security breach.”
We certainly can’t brush those comments aside. We need measures to safeguard identity, data and privacy. By ensuring basic security measures, banks, consumers and merchants can be assured that money is safely exchanging hands, or accounts.
Technology will solve its own problem
Every hurdle presents an opportunity. And since this is a technology hurdle, I believe the industry would evolve, innovate and present solutions that not only are seamless, but highly scalable. The obvious choice seems to be mobile PoS systems.
Chandnani adds that if India has to deploy 1 million PoS terminals over the next 90 days, then we would need to overcome a few challenges. It’s worth noting that the deployment of a million terminals indicates that we need to digitally-enable an equal number of merchants. In all these years, India has managed to install only 1.5 million PoS terminals among roughly 1 million merchants, an additional 1 million terminals at such short notice is a tall order. Hence the primary challenge becomes finding that many eligible merchants and equipping them with terminals in 90 days.
He believes it’s virtually impossible to expect a 1 million terminals up and running instantly. However, he assures us that “with a gap of 4 to 5 weeks, terminal suppliers are expected to be able to provide the required number of terminals in phases. Since there already is a backlog of existing orders, we expect regular supply of terminals from January onwards.”
The biggest hurdle, according to him, is manpower deployment and enhancement. In order to achieve this objective, “service providers need to gear up and recruit more manpower, train them adequately and then deploy them efficiently across India. Onboarding merchants will involve signing up merchants, completing their documentation, ensuring proper KYC compliance, assessing risk, etc., which take a certain amount of time and effort for which service providers must enhance their capacities.”
Patel’s company mSwipe works towards acquiring merchants and manufacturing its own mPOS terminals as well as deploying it at a very reasonable cost to its merchants. He believes with “the rising wave of cashless economy in the country and the demonetization policy of the government, there is a huge potential in the Tier II and Tier III cities, especially with the SME and small merchants for the POS industry.”
It appears that India’s digital ambition also rests with the hinterland. When India’s towns and villages start adapting digital modes of transaction, we might just be able to surge ahead and achieve much more than we did over two decades.
http://www.epaperindia.in/2016/12/demonetisation-india-needs-ramp-fintech-infrastructure-realise-digital-economy/
#Narendra_Modi, #Demonetisation, #Digital_Economy, #Digital_India, #Economy, #Fintech, #IndiaS_Economy, #Infrastructure
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