Why Cashless Won’t Be King
Demonetisation made digital the best option to pay but as cash withdrawal limits wind down by mid-March, the cashless honeymoon may well be over
of digital channels has slowed down as cash situation is normalising. “There has been a fall in digital transactions in recent weeks but it is higher than what it was pre-demonetisation,” she told the The Times of India on 16 February.
Two days later, the country’s second largest private lender, HDFC Bank, questioned the sustainability of the mobile wallet business, which was at the vanguard of the shift to digital payments the days following demonetisation. “I think wallets have no future. There is not enough margin in the payment business for the wallets to have a future,” declared Aditya Puri, CEO, HDFC Bank, on the side lines of the Nasscom India Leadership Forum last week.
The m-wallet brigade, of course, thinks differently. Vijay Shekhar Sharma, founder of Paytm, which became virtually generic with cashless payments after the note ban, believes FOUNDER, PAYTM digital is disruptive and habit-changing. “Startup culture is all about disruption and in initial years companies spend to grow and have no profits to show. We have seen it with WhatsApp, Amazon, Google and so many others. In fact, WhatsApp was sold for $19 billion without any money to show. Digital payment is a disruptive method and will grow.” Pointing to the attractiveness of digital payments Sharma says 1 million cinema tickets are sold every week on Paytm; along with two million travel tickets a month. Madhur Singhal, partner at Bain & Co, a consulting firm, says, “To have 2,500 crore digital transactions is ambitious. The December run rate was 300 crore—so we’re talking about 8x growth. For this to happen we need more PoS (point of sale) deployments, peer-to-peer transactions and geographic expansion of digital in tier II and III towns and rural areas.”
The government’s plan to boost digital payment numbers includes a push to deploy 10 lakh new PoS devices (that help complete card deals) by March and 20 lakh Aadhar Pay PoS machines by September. Already the BHIM app, developed by the National Payments Corporation of India (NPCI) and based on UPI, has been downloaded 125 lakh times. That’s a great start towards a digital economy, but is it enough?
Subho Ray, president of the Internet & Mobile Association of India (IAMAI), says: “The government needs to massively improve infrastructure and security. USSD and the like are generally forced use cases and actually deter the customer.” Frauds have gone up in tandem with arise in digital transactions. Digital payment app Paytm reported a jump in suspect transactions from an average of ₹ 4 crore a month to ₹ 11 crore a month post demonetisation.
Reserve Bank of India data for digital transactions showed a 10% decline in mid-January, compared to a month earlier, as access to cash got easier.
Overall, the number of digital transactions (debit cards, credit cards, electronic transfers, wallets & mobile banking) fell to 923 million in January from 1,028 million in December.
Sriraman Jagannathan, vice president, payments, Amazon.in, the country’s second largest e-tailer, says “if we want 0.5 billion people paying digitally, we have to solve infrastructure quality and network issues.”
India has about 350 million internet u s er s , ab out one - t hi r d b ei ng broadband users, according to a FicciDeloitte report. This will grow to 500 million by 2020. Barring USSD, which is SMS based and best suited for feature phones, other plans like UPI and BHIM need internet connectivity. To boost connectivity the government has increased the outlay for BharatNet— touted as the world’s largest rural broadband connectivity project — to ₹ 10,000 crore in 2017-18. The project will help deploy high speed connectivity across 1.5 lakh gram panchayats. RailTel Wi-Fi, the Indian Railways project with Google to deploy free Wi-Fi, is live at 110 stations and shows ample appetite for online transactions.
A Google spokesperson says 15,000 first time internet users connect every day on the network, with consumption higher in tier II cities (like Nagpur, Coimbatore) where access to high speed broadband connection is challenging. AP Hota, managing director of NCPI, the nodal agency for payments, reckons limited adoption of credit and debit cards could slow down digital adoption. “China with 1.4 billion people has 5 billion cards, in India its only 800 million cards,” says Hota. He is optimistic that digital will be preferred despite cash being back. “Mobility of products will result in users preferring digital payments. The upcoming launch of Aadhar Pay (a merchant version of digital payments) and deployment of PoS machines are steps in the right direction. Says Harish HV, partner, Grant Thornton, an advisory firm: “The challenge is not just to build the infrastructure, but how simple it’s to use and how safe. Do we have the infrastructure to scale five times to 2,500 crore transactions? That goal translates to at least 10 transactions per person per month. Over 95% transactions are in cash
Call drops, buffering, patchy coverage in remote areas
Too many steps to complete digital transactions
Interoperability is an issue Digital Platform Month Nov Dec (IMPS) Jan Nov Dec (UPI) Jan
Nov (debit, credit) Dec Jan Nov Dec Jan
Frauds have increased, will continue to as digital payments increase
The focus a lso needs to be on the digit a l have -nots, who st r uggle to use devices to pay. Arpita Agarwal, partner, telecom industry practice at PricewaterhouseCoopers India, says, “India needs good handsets at under $30.” Most of the cheaper handsets compromise on quality and are inadequate for mobile internet. Upasa na Ta ku, c o - founder of MobiKwik, a mobile wallet firm, is more optimistic. “There are hiccups, but the future is less
central governments 340 cr Lucky Grahak Yojana where it’s giving cash prizes to digital payers will end on April 14
Value (` cr) 32,480 43,190 49,210 90 70 16.6 35,240 52,220 45,830
1,206.7 Users will have to pay digitally only to achieve the target.” Harish also points to low deposit insurance given by banks (up to ₹ 1 lakh). “This must be increased if cash has to stay in the banks to boost digital payments.” CEO, HDFC BANK cash. Once use cases proliferate it will be easy—like pay for parking, bus tickets.” Gujarat State Road Transport bus conductors wear jackets with a QR code embedded on them to help commuters pay via mobile wallets. MobiKwik has tied up with Amul, MTNL, BSNL, BigBasket, National Highways Authority of India, among others, to enable wallet payments.
Taku has witnessed bottlenecks as well. “There are infrastructure problems. Like at the Surajkund fair (in Haryana recently) – on weekdays it was no problem but on weekends the system was unable to handle traffic. We have to plan to scale for more users.”
As transactions scale, so will frauds. Saket Modi, CEO, Lucideus, a cybersecurity startup whose clients include Kotak Mahindra Bank and Indigo and has worked with NPCI on testing the BHIM app, sees frauds increasing exponentially. “There will be crashes and frauds. No payment system is 100% secure.” In January, RBI invited applications for cybersecurity experts to join Reserve Bank Information Technology (ReBIT), which was set up in May 2016. RBI has also asked banks to report any tech breaches within six hours. However, banks spend small change on security compared to their US counterparts. Modi cites JP Morgan which spends $300 million a year on security compared to just a few million dollars by Indian banks. And here’s one reason why cash may be ahead of cashless. When ET did a random check at a local South Delhi market and online, it found the following price patterns: a pair of jockey pyjamas cost ₹ 720 in cash, ₹ 799 if paid via digital means and ₹ 769 on Amazon. And therein lies the
value of cold cash. Spain, through a €0.5 million grant from the European Union.
Partnerships are key to some of the programmes of Ahmedabad University. The deepest of these partnerships is with the Olin College of Engineering near Boston, a twenty-first century institution with a global reputation for innovative pedagogy. Olin College, which has no other partner in Asia, does not have classroom lectures like other universities. Students learn by doing projects.
Over the last two years, four AU faculty have spent a few months each in Olin College and imbibed its methods. “The class is no longer like a podium,” says Ratnik Gandhi, assistant professor at the school of engineering and applied science. “It is like a studio.” Undergraduate students are exposed to research methods from the beginning. In the life sciences division, among the most developed disciplines at the university, undergraduates have the luxury of a well-equipped laboratory usually accessible only to masters and PhD scholars in most places. “All equipment is handled by our undergraduates,” says Ajay Karakoti, nanobiologist and associate professor at the university. It is one way of immersion in the subject. All students are required to take courses in science, data and mathematics. Engineeringstudentshavetolearnbiology andcommercestudentsmustlearnmaths. Artssubjectsarealsocompulsory.Mayank Jobanputra,anundergraduateininformation, communication and technology, had to take courses in critical thinking and argumentation, ethics, communication skills, English literature, and so on.
AU is part of the zeitgeist, part of a movement when rich philanthropists are setting up good educational institutions. “The government will never be able to build a disruptive educational system,” says Ramaswamy Subramaniam, professor at the Institute of Stem Cell Biology and Regenerative Medicine in Bengaluru.
Hardcore scientists may not easily go to Ahmedabad, as Gujarat is not seen as an academic destination. It took four decades before IIM Ahmedabad got its current reputation. It will take equally long for a private university as well.
AU was set up in 2009 by the Ahmedabad Education Society, with a mandate to be a university driven primarily by research, in what was an unusual start
Immediate Payment Service Unified Payment Interface Cards USSD* 36.2 52.8 62.4 0.3 2.0 4.2 205.5 311.0 253.1 7.0 102.2
64.9 *Figures are in thousands; Data for Nov, Dec 2016 & Jan 2017 Unstructured Supplementary Service Data (USSD) Source: RBI