Demonetisation in India encourages online payments industry

How would you describe the current Indian payments landscape?

78% of consumer payments in India are made in cash, which is in sharp contrast to countries like Brazil, China, the UK, Australia, the US, France and Germany, where it is below 50%. India’s Cash to GDP ratio is also one of the highest in the world (12.4%) compared to similar countries, like Brazil (3.3%), Mexico (5.32%) and South Africa (3.72%). The preference for cash-based transactions is evident from the high debit card usage pattern in the country. Debit cards are mostly used at ATMs for cash transactions, accounting for around 85% of the total volume and 92% of total value of debit card transactions. Usage of debit cards at POS machines account for only around 14% of the total volume and 7-8% of the total value of debit card transactions.

Successive Indian governments have realised the importance of a less-cash economy laying the foundation of a strong digital payments ecosystem through the trinity of JAM (Jan Dhan, Aaadhar and Mobility) and facilitated by payments platform like Unified Payments Interface (UPI) and Immediate Payments System (IMPS). Currently, India has a broad choice in payments in bank debit/credit card, digital wallets, USSD, AEPS (Aadhaar-based Electronic Payments System), which provides a comprehensive payments umbrella for the digitally evolved mobile user as well as the financially excluded bottom of the pyramid segment.

The government’s new digital payments app called BHIM (Bharat Interface for Money) will help simplify digital payments even further. The app is based on NPCI’s Unified Payments Interface. With this, India’s digital payments ecosystem now includes stakeholders like the Government, with its UPI-based BHIM App, banks providing cards as well as mobile banking apps and mobile wallets like ICICI pocket, Operators providing mobile wallets like Airtel Money, Idea Money, Vodfone M-Pesa, Payment banks for the financially excluded and third party wallet providers like PayTM and Mobikwik.

Recently, Prime Minister Narendra Modi has started a demonetisation process throughout India. Could you briefly outline the main arguments for this regulatory move and how can it boost payments, in general?

Cash creates an additional burden of INR 21,000 crores on the government exchequer every year on account of various aspects of currency management like printing, logistics, and operations. Recognising the various inefficiencies that are inherent in cash-based economy, the Government has made the push for a less-cash, with the aim to reduce the cash to GDP ratio to more acceptable levels of 3-4%. Also, by improving transparency and accountability in payments through end-to-end digital transactions, the Government aims to curb the debilitating effect of the shadow economy on the real economy, which experts estimate to be as high as 3.2% of the GDP.

Demonetisation has catalysed the payments industry with a massive surge in digital payments across the board. The huge interest generated in digital payments, combined with various government initiatives like the India Stack initiative, will catalyse customer-centric innovations in digital payments which will bring even more converts to digital payments in the future. India Stack is a complete set of APs for developers and includes the Aadhaar for Authentication (Aadhaar already covers over 940 million people and will quickly cover the population of the entire nation), e-KYC documents (safe deposit locker for issue, storage and use of documents), e-Sign (digital signature acceptable under the laws), unified payment interface (for financial transactions) and privacy-protected data sharing within the stack of API.

What would be the main impact of the demonetisation initiative on the retail industry, as well as on the consumer behaviour?

Demonetisation has led to a surge in digital payments. In the period between November 8 and December 7, the number of mobile wallet transactions per day has increased to 63 lakhs from 17 lakhs, which is a massive surge of 271%. After demonetisation led to a slump in sales, merchants have shown an increasing amount of interest in POS equipment to accept payments digitally. Meanwhile, Rupay, India’s domestic payment scheme, has grown in transaction volume (6.22 million to 11.97 million) as well as value (18.16 to 30.06 billion) from the month of October to December. Since Rupay is attached to Jan Dhan Account holders, this could very well catalyse the digital payments revolution in rural India. On the behavioural front, we believe that demonetisation could have more than a salutary effect on the payments industry in India by expediting the behavioural changes required to establish a less-cash economy.

How is Mahindra Comviva positioned to take advantage of the Prime Minister’s demonetisation decision?

Mahindra Comviva provides a comprehensive cloud-based solution for the issuing side as well as the acceptance side of digital payments. It caters to the financially excluded base of the pyramid segment as well as the digitally evolved users – the digital natives – and leverages the latest technologies in the field of mobility, analytics and user experience (UX).

On the issuer side, we provide banks with a white-labelled mobile wallet solution, which helps them to increase their digital footprint in the market. ICICI Bank’s Pockets ‘Touch & Pay’ powered by Mahindra Comviva’s mobiquity® Wallet is the first HCE-based contactless payment service launched by a bank in South Asia. By adding HCE payments to ‘Pockets’ app, ICICI Bank allows 30 million credit and debit card customers to make in-store purchases with a tap of their smartphone.

mobiquity® Wallet leverages iOS 10 Siri and 3D touch to provide intuitive and immersive user experience. Users of Mobile wallet powered by mobiquity Wallet can now initiate payments using voice commands. 3D touch integration provides users with access to most frequently used features on the wallet with just a long press.

Similarly, with the future of banking expected to become intelligent and automated, a chatbot-based implementation becomes important now. mobiquity® Wallet provides chatbot-based registration for mobile wallets and payments services. The combination of artificial intelligence and a customer friendly interface can help to deliver personalised and contextually relevant solutions across various delivery channels.

Also, given that NPCI’s UPI interface is increasing in popularity and given that 99% of India is on Aadhaar, we have integrated them into our mobiquity® Wallet, which will not only help banks to increase its digital footprint across the country by enabling Aadhaar enabled e-KYC, but also drive higher levels of adoption by simplifying transactions through UPI.

On the acceptance side, we have launched a mobile POS solution with First Data, providing a holistic payments acceptance solution for merchants in India. The solution accepts a variety of card payments, including all types of chip and magnetic cards, and is also compliant with RBI, EMV and PCI standards. We have already witnessed a 5X growth in mobile POS transactions after demonetisation. For wider adoption, we have integrated payPLUS with e-KYC and Aadhaar-based electronic payments to broadbase merchant acceptance networks.

Considering India’s diverse payments needs and requirements, we need a more comprehensive strategy that caters to digital wallets as well as merchant apps integrated with USSD. By using USSD for delivering payload to the server, we help to support Aaadhaar-based payments without the need for a data connection. By providing a payments solution to the burgeoning base of feature phone users in India, we hope to reach out to vast sections of the population that do not have access to data.

What other aspects of the payments industry should be tackled with to improve the overall money flow?

The Government has pushed through various regulatory and infrastructural reforms to create a favorable climate for digital payments. On the infrastructural front, the combination of the JAM trinity, UPI and IMPS will help scale digital payments rapidly. On the regulatory front the Government has pushed through various initiatives to expedite digital payments like rationalising MDR, waiver of two factor authentication for digital transactions up to Re 2000, reduction of customs duties on POS equipment and introducing e-KYC for the unbanked of the population. With the robust digital payments infrastructure and regulatory framework in place, the time is perfect to broaden the base of digital payments even further by onboarding the unbanked segment of the population as well.

Banks should take the lead from the growing popularity of digital wallets by integrating their wallet offering with e-KYC, Aadhaar Authentication and UPI payments interface for onboarding new users. Bank’s strategy should not be restricted to smart-phone users only, but also include feature-phone users as well, especially with the poor internet connectivity in rural India and semi urban regions of the country. Hence, there is a need to offer both the digital wallet as well as the merchant app integrated with a USSD backbone. In this case, the entire customer interaction would still be on the mobile application but at the back-end USSD will be used for pushing the payment information, facilitating transactions without a data connection.

On the payments acceptance front, there is a need to simplify registration process for POS equipment. Therefore, e-KYC for merchants as well as payments through Aadhaar Electronic Payments System should be adopted. India should also take the lead from less-cash societies like South Korea and Sweden which have incentivised digital payments for merchants as well as consumers through a combination of rebates and tax incentives. Finally, there is a need to create a mechanism to reflect the true cost of cash and this would require the Government to levy taxes on cash transactions above a certain amount.

Thinking for the future, what is Mahindra Comviva’s vision of payments post-Unified Payments Interface effective implementation?

India has one of the most sophisticated payments system in the world in the form of the Unified Payments Interface. NPCI’s Unified Payments Interface (UPI) is a powerful digital payments platform that helps to facilitate quick and seamless payments with only a Virtual Payment Address. It is available 24X7 on Immediate Payment Service (IMPS) platform. Presently, 36 banks are live with UPI, which includes the State Bank of India (SBI) – India’s largest public sector bank. Since the demonetisation, there is more awareness about UPI in the country, which has led to a surge in the use of UPI. From about 287,000 transactions in November 2016, they reached about 719,000 in the first 15 days of December 2016 – according to data published on the Reserve Bank of India’s website. The value of these transactions also spiked in December 2016. For instance, between 1 December and 15 December 2016, the amount transacted through UPI was Rs220.9 crore, compared to Rs90.5 crore in November 2016. While UPI is currently primarily used for money transfer between bank wallets and accounts as it develops and gets a sizable user base it will also be used for merchant payments. Technologies like QR code combined with UPI will help to simplify payments to merchants and fuel the growth of digital payments.

About Srinivas Nidugondi

Srinivas has over 17 years of experience in various industries including financial services, payments and commerce. At Mahindra Comviva he heads the mobile financial solutions business unit, which currently has over 120 deployments globally, providing services for more than 750 million consumers and processing over USD 35 billion in payment flows.

About Mahindra Comviva

Mahindra Comviva is the global leader of mobility solutions catering to The Business of Tomorrows. The company is a subsidiary of Tech Mahindra and a part of the USD 17.8 billion Mahindra Group. Its mobile financial solutions are deployed in over 55 countries across the world.