How Does India Become A 'Cashless' Country?

14/01/2015 8:10 AM IST | Updated 15/07/2016 8:24 AM IST
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An employee counts Indian rupee banknotes at a Hindustan Petroleum Corp. gas station in Jaipur, Rajasthan, India, on Monday, Oct. 13, 2014. Indias retail inflation slowed more than economists had estimated after central bank Governor Raghuram Rajan held one of Asias highest interest rates for a fourth straight meeting. Photographer: Udit Kulshrestha/Bloomberg via Getty Images

Last January, my NRI brother came visiting, and I picked him up at the airport and dropped him off at my mother's. About an hour into his visit, he went out on to the street to buy a few items at the kirana shop down the street. After picking a few items and totalling up, he realised that he had no currency and the store would not accept his card. He had two choices, walk about 7 minutes away to a supermarket or walk 5 minutes to an ATM, punch a hole in the wall and walk back. Neither of which he actually did, but we'll come back to that in a bit.

For us to really go cashless, one often asks, 'can you pay by card in your local kirana shop?' and the answer today is "Yes", as innovations like mPOS (mobile Point-of-Sale) with their lower costs are being welcomed by both merchants and banks. And yes, that specific shop in question can today accept my brother's international card.

But where are we really, in this cashless journey. As they say, 'well begun is half done' and our Government has already put in place all necessary measures for India to go the cashless route. Smaller countries like Sweden, Norway, Iceland, Belgium and France are showing the way in the list of cashless economies and that perhaps reveals a lot. India is a very large country in comparison and has been a significant cash economy for a very long time. We have always liked the concept of 'hot cash', that feeling when you have currency bulging in your pocket or under your mattress, if you have larger sums to store! However, this is slowly changing, thanks to various measures that the Government has taken over the years. Kudos to the Reserve Bank of India, which has put together the much necessary payment infrastructure in place and also to the many payment services companies across the country that are also playing their part in enabling small and medium businesses to go cashless. The growth of RuPay and IMPS (Immediate Payment Service) from NPCI (National Payments Corporation of India), are also key additions to the ecosystem, which will help reduce the usage of cash. The tectonic shift, however, is quite naturally seen in mobile payments, with the rapid rise in the mobile subscriber base. The domestic remittance business was a new use-case that various prepaid licensees saw, with the increasing number of mobile phones even in rural parts of the country. It was a perfect match between technology and market needs, which is why it has seen seeing tremendous growth. With the Pradhan Mantri Jan Dhan Yojana, the number of unbanked citizens is poised to significantly reduce and the direct transfer of benefits and subsidies to bank accounts will reduce the physical cash burden as it leaves Government coffers.

But the moot point of how we go about the objective of taking India further down the cashless route, lies in breaking this down to smaller components and the key to that solution is in how India is governed--the Federal system. To this end, we recently had consultations with senior personnel across a few different state governments to see how we can deploy low-cost mPOS devices with field officers to reduce cash handling across various departments. Once individual state departments decide to accept card payments at the doorstep, just like they accept online payments for services like electricity, water, property tax, gas etc., the cash burden will reduce significantly and help speed up cash flows. This ensures that the second leg of payments, from the citizens back to the Government is also cashless.

The growth of e-commerce in India has meant that an increasing number of customers are now buying online, with less fears of card misuse, thanks to the Second Factor Authorisation mandated by the RBI. A significant number of transactions are paid online (cashless), yet a reasonable number continue to be cash-on-delivery. This is slowly changing, as many last-mile delivery companies are now carrying an mPOS device for collecting payments and converting them to 'card-on-delivery' to reduce the risk of cash handling. This has proven useful as the transaction moves from a card-not-present online transaction to a card-present transaction and removes any risk that the customer might be afraid of.

With millions of smartphone users and the largest youth population in the world, India is quite obviously a major market for the biggest smartphone makers. The next wave, that will change the landscape and help India go to the top of the cashless ladder, will be mobile payments using NFC. Till date, NFC (Near-Field Communication) has just been tested in small pilot programs, but with Google adopting HCE (Host Card Emulation), many Indians will very soon have the ability to pay using their Android mobile phones in a contactless manner. Contactless will hopefully take us to the point where we no longer have to fish out a few small notes for purchasing tickets to use the metro or bus and perhaps at that stage we will be closer to the cashless economy that we are all aiming for.

We now have all the technology to make it happen, we have a central Government that wants it to happen and what is now needed is for all of us to collectively will it and demand it. And of course, educate every stakeholder on the benefits of going cashless in the long term.

So this January, when my brother comes visiting, I will perhaps ask him to take a taxi and use his card on the mPOS device and get home. And yes, since you are wondering about last December's kirana shop visit, he didn't have to pay at all. The shop owner recognised who he was, gave the items on credit and added the bill to my mother's account!

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