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View from India: E-Payments cash in on India's new digital economy

India’s Prime Minister Narendra Modi announced the demonetisation of high-value currency of INR 500 and 1,000 on live television on November 8 2016. That means 86 per cent of the total currency in circulation was banned. When translated, it means notes worth Rs 15.44 lakh crore have gone out of circulation.

Demonetisation (aka DeMo), as Prime Minister Narendra Modi describes it, is an effort to tackle black money and boost the country’s digital payments market.

The country was certainly not prepared for such a historic move. Yet, DeMo has not faced any significant political opposition so far. After DeMo was announced, in the first quarter, the GDP (gross domestic product) growth rate fell to 6.1 per cent compared to 7.9 for the same period the previous year.

However, what can be said is that DeMo has paved the way for the growth and development of digital payments. The Payments Council of India indicates that the growth rate of the digital payments industry scaled from being in the range of 20 to 50 per cent up to 40 to 70 per cent.

Looking back, India’s march towards a cashless economy has been facilitated through new-age digital payment services, e.g. the Unique Payment Interface (UPI) and Aadhaar Pay, along with Government-led schemes. The Bharat Interface for Money or BHIM app has been introduced to make digital payments using a smartphone. Through the BHIM platform, users can make digital payments using biometric data which is a fingerprint scanner on a merchant’s device and this is as simple as a smartphone with biometric reader.

Earlier in the year, the State Bank of India (SBI) waived merchant discount rate (MDR) charges on debit card transactions.

Mann Ki Baat, the PM’s monthly radio address to the nation, unveiled two schemes in December 2016. Titled Lucky Grahak Yojana and Digi Dhan Vyapaar Yojana, both are for customers and traders alike to promote mobile banking and e-payments.

In an effort to encourage traders, the scheme Digi Dhan Vyapar Yojana is designed to keep all sections of society in mind, with a special focus on the poor and the lower middle-class segments. The PM’s Digital India Mission has been further strengthened by facilitating the less privileged people through Unstructured Supplementary Service Data (USSD) which can be used on feature phones to buy and sell goods as well as make payments. Likewise, the Aadhaar Enabled Payment System (AEPS) encourages the rural population. AEPS is a means of getting money from a bank account. It neither requires the individual’s signature nor debit card, but uses Aadhaar data instead for the authentication.

In his radio address, the PM indicated that there are about 300 million RuPay Cards in India, of which 200 million belong to poor families which have ‘Jan Dhan’ accounts. These 300 million people can immediately become part of this rewards scheme. RuPay is an Indian domestic card scheme conceived and launched by the National Payments Corporation of India (NPCI). It was created to fulfil the Reserve Bank of India’s desire to have a domestic, open loop, multilateral system of payments in India.

In immediate response to DeMo, state governments have come forward with various schemes. The Assam Government announced a grant of a 10 per cent discount on property tax and business license fees, provided payments are made digitally. The Assam Government has also decided to recognise the digital contribution of farmers. The first 10 farmers who make digital payments for buying seeds and fertilisers will be honoured as Digital Krishak Shiromani. The award also carries a sum of Rs 5,000 for each farmer.

Electronic payment companies in India have experienced a huge growth since DeMo. Many domestic e-payment companies have managed to go beyond the digital payments space, as some brands have also expanded e-commerce business to offer loans. Even investments are happening in the e-payment and mobile wallet space.

As per the representative data on electronic payment systems released by the Reserve Bank of India (RBI) in October 2017, Unique Payment Interface (UPI), a digital means of transaction which had a volume of 0.3 million in November 2016 scaled up to 16.6 million in August 2017. Similarly, the value which was Rs 0.9 billion increased to Rs 41.3 billion in August 2017.

The total volume of electronic payment systems, which stood at 671.5 million in November 2016, has increased to 883.4 million in August 2017. The total value of electronic payment systems, which stood at Rs 94004.2 billion in November 2016, has increased to Rs 109817.9 billion in August 2017. RBI is India’s central banking institution, which controls the monetary policy of the Indian rupee.

Let’s not forget that India’s rural economy still runs on cash transactions, due to which many farmers ended up without money to make essential purchases. Besides that, the banning of Rs 1,000 and Rs 500 notes has led to a great deal of discomfort and shaken money transactions among citizens across the country, including in urban India. With people queuing up to deposit Rs 1,000 and Rs 500 notes, the banks ended up with huge cash deposits. As a lingering impact, the interest rates offered by banks to customers came down drastically.

Meanwhile, the income tax department has sprung into action by scrutinising the banned currency that has been deposited in the banks.

India’s digital journey can become fruitful only when the entire ecosystem is functional, complete with mobile connectivity, mobile banking and a seamless internet connection throughout the country.

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