ByDefault,orDesign:DemonetizationPushesforaLessCashEcosystemDivyaMaryandIrisBraun,IFMRLEAD

In the last half decade or so, policymakers and regulators in India have takensignificantstepstoencourageelectronicpaymentsystemsforushering ina less-cash society in India. As reflected in the Reserve Bank of India’s latest visiondocument on Payment and Settlement Systems in India, the overall push forbuilding a payments ecosystem around the 5Cs of coverage, convenience,confidence, convergence and cost. RBI aims to achieve these through fourstrategic initiatives: Responsive Regulation towards innovations in payment,Robust infrastructure, Effective supervision of payment system operators andCustomer centricity. The data from RBI reveals that the digital ecosystem isexpandingwithmoreusersjoiningthebandwagon.

Mappingmilestonesinthe‘less-cash’ecosystem

Digital Payments 2020 (July 2016), a BCGandGoogle studyhighlights several favourable trends that are shaping thedigital payments ecosystem such as increase in smartphone penetration and access tomobile internet, a favourableregulatoryenvironment(KYCrelaxationsfortransactionsupto10,000permonthonPPIs,exemptionfromTwoFactorAuthentication(2FA)inm-wallets,AadhaarmakingKYCeasier,BharatBillPaymentSystem);andtheemergenceofNextGenpaymentserviceprovidersofferinganenhancedcustomerexperience.The‘less-cash’architectureconsistsof:theJAMinfrastructure(basicsavingsaccountsandDBT),paymentbanks(smallvaluetransactionsandlast-mileconnectivity)andUPI.JAMinfrastructure• JanDhan:250.5millionaccountsopened,192.2millionRuPaydebit

cardsissuedasofOctober12,2016.• 4.2%ofGDPonkeysubsidies(227millionbeneficiaries,36different

schemes),over20%ofIndia’spopulationreceivedacashtransferinFY2014-15

• Aadhaar:In2016,crossedtheonebillioncoveragemark(75%ofadultpopulation)

2008:EstablishmentofNaBonalPayments

CorporaBonofIndia

2010:ImmediatePayments

Service(IMPS)formobilepayments

2012:OnlineverificaBonofAadhaarcards;

PaymentsBridge

2013:Aadhaar-enabledPaymentSystem

2014:NaBonal

MissionforFinancialInclusion

2015:In-principlepaymentbank

licenses

2016:LaunchofUnifiedPaymentsInterface

2016:DemoneBsaBonof

Rs.500andRs.1000notes

Table1:TheAmountofJAMin2014-15Total amount disbursed (INR incrores)

44035

No.ofbeneficiaries 29.6BeneficiariesseededwithAadhar 57%Funds transfer using AadharBridgePayment

26%

Table1:Source(EconomicSurveyofIndia,2015-16)

Challengestothe‘lesscash’ecosystem:

• JAM and DBT: Linking Aadhaar to PMJDY –Andhra,Chhattisgarh, Jharkhand, Karnataka, Kerala andMaharashtra(less40%linkagetoAadhaar)

• Challenges of payment(Govt.à beneficiary) and last-mileconnectivity(Bankàbeneficiary)

• PoorFinancialLiteracy:24%ofIndianadultsarefinanciallyliterate, the lowest score among the BRICS. (S&P survey,2016)

• Consumerattitudes/interest: Incentivesandinnovationsneeded e.g. integrating loyalty programs with paymentwallets.

• Concerns of merchants: Ensuring universal acceptance ofdigital payments, reliable speed of transactions duringpeakhours

• Seeding based on data from UIDAI: MGNREGS(52.29%), pension schemes (23.22%), LPG subsidy(52.61%),PMJDY (42.08%),EPFO (17.14%),andPDS(20%).

• Mobile:Over1bnsubscribers;but<1.5%usemobilemoney.However,RBIfindsthatmobilewalletshavesurpassedmobilebankinginvolumeterms,doublinginApril2015-February2016,whentheycrossed55,000crorespermonth.

Payment Banks: To allow for small value transactions,RBI licensed11paymentbanks in2015.Majorityofthelicenseesare technologyand telecomgiants,whichcanharness their expertise in technology in enabling thetransitiontowardsadigitalecosystem.

UnitedPaymentsInterface:InAugust2016,NPCIlaunchedtheUnifiedPaymentInterfacewhichallowsmoneytransferbetweenanytwobankaccountsthroughasmartphoneappusinga“virtualidentifier”ratherthanone’sactualidentity(withoutcredit/debitcarddetails,IFSCcodeornetbanking/walletpasswords).Customersneedtoregistertheirmobilenumberwiththebank.

Demonetisation:Pushingfora‘less-cash’economy

Postde-legalisationofoldhighdenominationcurrency,Rs.500andRs.1000,thenarrativethatemergesisthatIndiaisnowbeingcatapultedintoaless-cash(notcashless)economy.Itisimperativetocriticallyevaluatedemonetizationfromthe lensof financial inclusion, asdemonetisationbydefault could lead to substitutionof cash transactions viadigitalpayments.

Recent studies conducted among low-income consumers and merchants revealthat that themainreasondeterring themfrom the adoption of digital payments isgettingstuckinacashecosystem,withnoincentive to shift towards a digitalpayments ecosystem1. Moreover, a BCGstudy in India reveals that among thebarriers toadoptingdigitalpayments, thehabit to use cash (68%) emerged as themost predominant reason. Limitedopportunities to try digital payments alsolower take up rates among consumers.Convincing consumers into using digitalpayments for the first time may be a

challenge, but once they begin to use these platforms, the enhanced experience and improved convenience couldencourageregularuse.2Thewindow of “trial-ability” that demonetisation provides represents an opportunity to drive sustainable behaviourchangetowardsusingdigitalpayments.Atthesametime,itisimportanttoacknowledgetheprevalenceofcashinthelivesof financiallyvulnerablesegments,anddesignsystemsthatenable themto transactdigitally, inan inclusiveandaffordablemanner.

1BeyondCash,USAID,https://www.globalinnovationexchange.org/beyond-cash2BeyondCash,USAID,https://www.globalinnovationexchange.org/beyond-cash