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BW Businessworld

Solving Payment Problems

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The RBI and commercial banks face about Rs 21,000 crore ($3.5 billion) in currency operations cost annually as per a report ‘Cost of Cash in India’ commissioned by MasterCard. Out of this, Delhi, the capital alone spends INR 91 million and 6 million hours in collecting cash. India is a cash intensive market in the world with Cash-to-GDP of 12.2 per cent while other developing countries like Brazil and South Africa have Cash-to-GDP as low as 3.93 per cent and 3.73 per cent respectively. While the world is moving towards cashless payments, India is very slow in this regard. Cashless payment is the next generation payment solution which can address many perennial problems faced by India such as black money and corruption.
The financial inclusion program “Jan Dhan Yojna” started by the government has helped people to have a bank account. 125.5 million bank accounts have been opened as of 31 January 2015. Of these, 84.5 million are zero balance accounts as per the PMJDY website. Providing physical banking facilities to the people in 6 lakh villages and urban areas is a huge challenge. Though debit card facility is provided by most of the banks for their account holders, limited availability of ATMs and POSs has encourages cash transactions. Moreover, some retailers do not accept debit/ credit cards and ask the customer to make cash payments even for high value transactions. 
According to analysts, 10% of the sale was done using debit/credit cards while 90% using cash in the metros in 2014. 60% of the total transactions in the e-commerce sector are on Cash on Delivery (CoD). Concerns on security and lack of awareness prevent customers from adopting cashless transactions. 
Solutions from Technology, Media and Telecom
Technology is evolving fast and helping in making life convenient and secure. There are many technology solutions for cashless transactions:
Internet Banking: Internet banking is a very convenient online solution for monetary transactions avoiding the need to go to bank. But lack of Internet infrastructure, poor knowledge of internet banking and security concerns are blocking higher adoption of Internet banking. There are many methods available where funds can be transferred electronically from one bank to another. Electronic Clearance Service (ECS), National Electronic Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) are major ways to transfer funds electronically. In January 2015, 80.22 million electronic transactions took place in India and 5084 billion funds were transferred. 
Point of Sale: Point of Sale terminals are becoming popular in metros and cities. Big retailers, malls are using POS machines for cashless transactions which not only save time but are also convenient and user friendly. Also some e-Commerce players like Amazon use POS machines at customer premise to collect payments using card. But the popularity of these Point of Sale devices is limited to big cities and metros. In smaller towns, the lack of internet infrastructure and seamless connectivity is a major setback. Furthermore, the lack of organised retail in mid-tier cities does not encourage the use of POSs.
Mobile Apps: There are many mobile applications which can help in payment of bills, mobile recharge, shopping, ticketing, etc. The applications can save customer’s credit and debit card details and it is easier to make payments via mobile device anywhere anytime.
Though telecom and technology sectors provide many solutions for the payment sector, the lack of awareness and knowledge around the availability of solutions and security concerns are causing hindrance. Media can play a major role in spreading awareness around the benefits of cashless transactions and security issues. The print media and television can run educational programs teaching how to access the payment services, available options, providers, etc.
Telecom can play a major role in strengthening the payment industry because of its extensive rural and remote reach. Telecom technology can provide a unique platform for banking and payments where there is lack of physical infrastructure like banks, ATMs, etc. There are many telecom related banking and payment solutions in India and a greater awareness can motivate customers to make use of these technologies.
m-Banking: M-banking can provide a platform for banks to reach their customers in rural areas with the help of a telecom operator. Services like mpesa are successful in South Africa and Kenya. The USSD-based service can be successful in India as it is easy to use on any feature phone or smartphone. M-banking service is also helpful in recharge of mobile phones, DTH, payment of utility bills, etc. 
Near Field Communication (NFC): This technology is evolving in the payment industry. Customer can store the credit card details in a NFC enabled smartphone and can swipe the phone over the NFC powered terminals for payment. NFC based terminals are secure and many retailers are starting to use it for hassle free and secure transaction.
Mobile Wallets: Many players in the market are launching their payment solutions such as Google wallet, Apple Pay, Samsung Pay and the newest addition are ICICI Pocket and Android Pay. These wallets use NFC or bluetooth make contactless payments.
Mobile Commerce: The e-commerce industry is slowly shifting to a mobile platform by promoting customers to do app based purchase. Application based commerce is suitable for people who do not have computer access but have mobile phones. The app remembers the data of the customer like delivery address, contact number, credit and debit card details, etc. which gives better user experience.
Hashtag Payment: The social network players are also entering the payment industry. Twitter is working with Stripe, which is a payment start-up to provide e-commerce services by using hashtags. The user can store their credit/debit card details and can purchase products or pay bills by using hashtags e.g Kotak Mahindra Bank Launched #Tag Banking recently.
The author, Hemant Joshi, Partner, Deloitte Haskins & Sells LLP