Why Cash­less Won’t Be King

The Economic Times - - Deep Dive -

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

Vol­ume (m)

Value (` cr) 32,480 43,190 49,210 90 70 16.6 35,240 52,220 45,830

7,302.6 1,03,718.4

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

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