To a less-cash econ­omy

Mint Asia ST - - Cover - BNY ANDAN N ILEKANI

Ac­cord­ing to John King­don’s pol­icy win­dow model, three things must align for ef­fec­tive pub­lic pol­icy: the prob­lem, the so­lu­tion and the po­lit­i­cal will.

Dig­i­ti­za­tion and cash­less pay­ments are rec­og­nized the world over as the first steps to solv­ing the chal­lenges of fi­nan­cial in­clu­sion and ac­cess to cheap credit, both es­sen­tial to poverty al­le­vi­a­tion. In April 2016, the Na­tional Pay­ment Cor­po­ra­tion of In­dia (NPCI) launched a pi­lot for the world’s most ad­vanced pay­ments sys­tem, the Uni­fied Pay­ments In­ter­face (UPI).

It took till Au­gust 2016 for the first hand­ful of banks to up­load their Upi-en­abled apps. At the end of Oc­to­ber 2016, UPI had just over 100,000 trans­ac­tions with a to­tal value of Rs49 crore.

In the case of dig­i­tal pay­ments, In­dia knew the prob­lem and, for once, was ac­tu­ally ahead of the world in de­sign­ing a so­lu­tion. What was lack­ing was that it was not a po­lit­i­cal pri­or­ity.

De­mon­e­ti­za­tion, an­nounced on 8 Novem­ber 2016, and the sub­se­quent ur­gency to find al­ter­na­tives to phys­i­cal cash brought dig­i­ti­za­tion and cash­less pay­ments into sharp focus.

Sud­denly, min­is­ters and bu­reau­crats alike were ask­ing them­selves: “What can we do to un­block cash­less pay­ments?” In­cred­i­bly, steps that would have taken years, were com­pleted in weeks. A 13-mem­ber com­mit­tee, with six chief min­is­ters, was formed un­der the lead­er­ship of Andhra Pradesh chief min­is­ter Chan­drababu Naidu in early De­cem­ber to sug­gest ways to push cash­less trans­ac­tions. Af­ter ex­ten­sive con­sul­ta­tion, the com­mit­tee pub­lished its rec­om­men­da­tions in six weeks; most of them were im­ple­mented with the same alacrity.

Given the hes­i­tant adop­tion of UPI, the gov­ern­ment got NPCI to build, test and launch the Bharat In­ter­face for Money (BHIM) app, all in less than four weeks on top of what is now UPI-BHIM. The Tele­com Reg­u­la­tory Author­ity of In­dia (Trai) cut the USSD charges (levied on mo­bile bank­ing trans­ac­tions) from Rs1.5 to Rs0.5, en­cour­ag­ing fea­ture phone users to trans­act dig­i­tally. Aad­haar Pay was launched in April this year, en­abling even those with­out a phone or debit card to trans­act dig­i­tally. The mer­chant dis­count rate (MDR), i.e. the fees that card net­works charge on trans­ac­tions, was dra­mat­i­cally low­ered by 75% and 50% for trans­ac­tions be­low Rs1,000 and Rs2,000 re­spec­tively. With lower MDR for card users, BHIM app for smart­phone users, BHIM-USSD for fea­ture phone users and Aad­haar Pay for those with nei­ther phone nor card, In­dia had laid the foun­da­tion for the world’s most ad­vanced and in­clu­sive dig­i­tal pay­ments sys­tem serv­ing over a bil­lion peo­ple—and all in less than six months.

For the first time, the three card net­works: Visa, Mastercard and NPCI’S own Ru­pay, came to­gether to launch the Bharat QR (quick re­sponse), a vir­tual re­place­ment for le­gacy debit cards and point of sale (POS) ma­chines. The num­ber of tra­di­tional POS ma­chines, which had reached only 1.6 mil­lion in 20 years, jumped by 62% to 2.6 mil­lion in the six months from Oc­to­ber 2016 to April 2017.

E-wal­lets stepped up to the op­por­tu­nity and in the same six months, went from 10 mil­lion trans­ac­tions to over 32 mil­lion trans­ac­tions. Com­bined with other dig­i­ti­za­tion cat­a­lysts, such as the 900% in­crease in mo­bile data con­sump­tion since the launch of Re­liance Jio In­fo­comm Ltd i n Septem­ber 2016, In­dia sud­denly be­came a hot-bed of pay­ment in­no­va­tion. Do­mes­tic cham­pi­ons such as Phonepe are now com­pet­ing with Google’s Tez on the home­grown UPI-BHIM plat­form. What­sapp is ex­pected to launch its first ever pay­ment prod­uct in the world, on top of UPI-BHIM.

This is be­cause UPI-BHIM is truly rev­o­lu­tion­ary, and you can see that story in NPCI’S num­bers. From 0.1 mil­lion trans­ac­tions worth Rs49 crore just be­fore de­mon­e­ti­za­tion, UPI-BHIM com­pleted 76.7 mil­lion trans­ac­tions a month worth Rs7,057 crore, and is on track to cross 100 mil­lion by the end of Novem­ber. To put that in per­spec­tive, debit and credit card POS vol­umes are 377 mil­lion a month, a num­ber In­dia has taken 20 years to reach. UPI-BHIM will be a quar­ter of that in less than 20 months. The Re­serve Bank of In­dia, which has played a stel­lar role in this whole dig­i­tal trans­for­ma­tion, is­sued guide­lines for in­ter­op­er­a­ble wal­lets us­ing UPIBHIM, on 4 Oc­to­ber.

This is just the start. UPI-BHIM 2.0 will have eman­dates, which will ease col­lec­tions, and fur­ther boost flow-based lend­ing. In years to come, pay­ments pow­ered by UPIBHIM will be dom­i­nant.

Dig­i­tal pay­ments are only the first step. Now that peo­ple can move money with ease, we will see ser­vices and prod­ucts be­ing built for the un­seen ma­jor­ity in this coun­try. We’re al­ready see­ing an ex­plo­sion of start-ups in cash­flow-based lend­ing. These start-ups are en­abling credit to in­di­vid­u­als and small en­ter­prises that could not ac­cess it be­fore, based on their data. The busi­ness case is fi­nally in align­ment with so­cial ob­jec­tives. Who knows what other use case is around the cor­ner? All we can say is that in­no­va­tors are fi­nally build­ing for Bharat!

While 8 Novem­ber 2016 is etched in our col­lec­tive mem­o­ries as the day we switched to cash­less, it was just the start. Dig­i­ti­za­tion was al­ways go­ing to be a long process, and we still have a way to go. But, de­mon­e­ti­za­tion was def­i­nitely the defin­ing mo­ment in In­dia’s jour­ney to a less-cash econ­omy.

Nan­dan Nilekani is chair­man of In­fosys Ltd and for­mer chair­man of Unique Iden­ti­fi­ca­tion Author­ity of In­dia.

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