Two recent news reports have revealed some seriously disturbing trends. On 26 November, there were reports of a heist in Delhi where Rs 22 crores in cash were stolen by the ATM van driver, when he was left alone for just two minutes. The other story was on how prepaid cards were used to fund the 11/13 terror attacks in Paris. Just imagine the consequences for a country like India, deeply addicted to cash and where prepaid card issuance (aka "wallets") has reached stratospheric levels. Both these news items send a loud underlying message: (1) there is no option but move away from cash and (2) prepaid cards are not an answer to the digital payments question.
Just analyse the cash heist -- what was the need to transport 22 crores in cash? Whilst this might seem a relatively small sum compared to the thousands of crores of cash transported every day, it is not a small amount by any measure. How easy it was for the driver to just drive away with the cash! If not for his stupidity, he would've been roaming free somewhere with his loot. And there is no way the money could have ever been traced as cash has no colour.
We live in dangerous times where we need to choke every loophole that the terror financing chain exploits, including cash and prepaid cards.
As for prepaid cards, what is the loophole that was exploited by the terrorists? The answer is simple: know-your-customer (KYC) documentation. Regular bank accounts need KYC documents like ID proof and address proof and in some countries even a credit report. Prepaid cards, being of low-value denomination, do not need any documentation until transactions have reached a threshold (about EUR 2000 in France). So it's perfectly legal to open multiple prepaid wallets and side-step the entire KYC requirement.
The underlying message is that we live in dangerous times where we need to choke every loophole that the terror financing chain exploits, including cash and prepaid cards.
Therefore, the larger question is, when we have so many payment options available on your regular account, like debit card, credit card, net-banking and IMPS, why this obsession with cash and prepaid wallets? The answer lies in two parts: convenience and clever marketing.
Cash continues to remain the most convenient payment mode for buyer and seller, notwithstanding the inherent risks. I routinely see customers checking out at large electronic stores, paying sums up to Rs 1 lakh in cash. Prepaid cards waded into this "convenience" gap and lured customers with attractive discounts and "cash-back" offers. Of course, prepaid cards are better than cash, but they're equally risky due to the lack of a clear title.
Granted that getting a credit card is an uphill task especially for self-employed people and the numbers bear it out, with just about 22 million credit cards for a country of 1.3 billion. But debit cards are today ubiquitous; at last count there are more than 600 million debit cards issued in India. With such staggering numbers, far higher than the estimated 20 million prepaid wallets, what explains their abysmally low usage? It is largely lack of awareness, as most people in India refer to their debit card as ATM card. No wonder, Indians use their debit cards to withdraw cash 672 million times a month (roughly one per debit card) while they swiped it just 96 million times at merchant establishments (roughly one for six debit cards). Bear in mind, all this cash is not "black money" so it is being used to make legitimate consumer payments which could otherwise be safely done electronically.
Convenience without security will never achieve our objective of #CashlessIndia.
The problem could also be more deep-rooted than just lack of awareness. To pay for goods and services using cards, you need an "acceptance infrastructure" i.e. machines or technology to accept a debit / credit card payment. In banking parlance, these are called point of sale or POS devices (those bulky swipe machines). At last count, we just had a million such machines installed in a country of more than 25 million organised retailers. No wonder, you have no option but to visit the ATM on pay-day every month!
So, while the problem seems enormous, the solution appears to be rather simple. Just increase the number of POS terminals! But herein lies the catch. A small cost-conscious retailer may be unwilling to pay for the upfront and maintenance cost of these machines. The solution: convert the retailers' smart-phones into acceptance devices. New technologies are available which can create a super-wallet in consumers' hands and enable "anywhere-anytime-any mode" payments at the tap of the phone.
Cash and prepaid cards will have a 9/11 moment soon and legislation is bound to come in to control their usage. The Finance Ministry has already issued a paper talking about tax incentives for merchants accepting digital payments. The Paris attack and the Delhi heist should serve as a wakeup call to all stakeholders.
The obsession can largely be attributed to the legacy of dealing in cash for ages now and the new found fixation with the prepaid wallets. Both the avenues ride on the convenience quotient only. However, the "secured" element of the transaction also needs to be given equal consideration. Convenience without security will never achieve our objective of #CashlessIndia. More importantly, wallet service providers have now ventured into the burgeoning e-commerce space (or large e-commerce companies acquiring wallet companies) to eventually shed their independent and unbiased nature of business operations.
Mobile phone numbers and e-mail IDs are a modern reality and both have a large penetration among the consumer segment - the largest users of cash and prepaid wallets. Innovation and digital media transformation and integration to the banking ecosystem have ensured that both these credentials i.e. the mobile phone number and e-mail ID can be used to execute a seamless and, more importantly, a secured payment transaction. A bank account is all that one needs for such transactions to materialise. Thus, the benefits of the digital revolution can be transferred to not only those living in metros and tier 1 cities but also to those in remote areas where basic internet connectivity is accessible.
A mere replication of services offered abroad in developed markets may not serve in the long term.
Recently, I was at a Digital Banking Summit and a very strange but matter of fact reality hit me hard -- today's youth are open to switching their bank accounts but go any distance to retain their mobile number. At the same summit we discussed how India remains the only market where debit cards are still referred to as ATM cards and are used primarily if not only for cash withdrawal. We remain the only society where we take pride in converting e-cash to physical cash and through multiple changes of hands, and only a part of it again gets back into the system as e-cash, if at all.
The "inclusive" approach mentioned above is of utmost relevant in the Indian scenario since otherwise there lies a danger of further widening the digital gap between India and Bharat. The approach suggested makes sure that all of India reaps the benefits of the digital transformation presently being witnessed in the country.
As India races ahead to emerge as an economic superpower, it is pertinent to embrace the latest of global technology trends but at the same time ensuring that it is fully relevant to the Indian context. A mere replication of services offered abroad in developed markets may not serve in the long term. Let us en'cash' on the potential cashless world opportunity!
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