Digital transactions on the uptrend

Posted on August 25, 2015 by Sumita Kale

Even as India continues to be a cash-based economy, Indians are increasingly becoming comfortable with digital financial transactionsWhile all modes of electronic transactions have been showing consistent growth over the past few years, the latest to zoom upwards sharply since mid-2014 are mobile banking and mobile walletsThe numbers are still small but m-banking transactions shot up from 10 million transactions in March 2014 to 21.82 million in June 2015Over the last six months, the monthly transaction value on mobile banking has moved from Rs133.23 billion in December 2014 to Rs221.17 billion in June 2015 While deeper analysis and more data would be needed to identify the triggers for the sharp rise, some factors could be the easier availability of smart phones, aggressive push by banks to get transactions out of branches, media attention on Pradhan Mantri Jan Dhan Yojana and Digital India that has spurred consumer awareness and more products, improved apps by large private and public sector banks etc.

Interestingly, the trend in digital transactions is showing even in Pre-Paid Payments Instruments, that is Pre-Paid Cards and m-walletsThis segment has traditionally been kept on a leash, given regulatory concerns on financial stability; yet growth spurted mid-2014 in line with the trend in m-bankingThe increase in PPI balances in full-KYC accounts from Rs50,000 to one lakh last December could have been the trigger to push the value of transactions through PPIs to cross Rs20 billion in December and growing fast ever sincePPI cards and mobile wallets can be issued by banks and non-banks, and though RBI data does not reveal whether any particular bank or segment is more responsible for this spike in PPI transactions, anecdotal evidence suggests that the banks have become aggressive in this space recentlyMeanwhile last month the RBI allowed the issue of Pre-Paid Cards for mass transit systems, and this can be a popular choice for commuters who have to grapple with giving change for their faresRecently, three more companies have been given PPI licenses – Eko Financial Services, CardPro Solutions and Paul Fincap Pvt Ltd, raising the total number of licensed issuers to 37 nowFurthering the positive measures taken so far, the potential of PPIs networks can be maximised by linking PPIs to the inter-operable networks maintained by the National Payments Corporation of India, as well as to switches like National Automated Clearing House, allowing for Aadhaar OTP-based e-KYC, bringing the minimum KYC wallet transaction limit at par with the limits set by the Domestic Money Transfer rules etc.

RBI policy has been to move towards a less-cash economy, and it is important to allow for more competition and innovation that will spur consumers onto digital platformsApart from the existing banks and PPIs, 11 new Payments Banks have been announced by the RBI, these new banks will work to expand access to digital financial services, yet it would take some time for their roll out across the countryMeanwhile, more can be done on the regulatory front as well as by industry to boost large scale adoption of digital transactions.

When it comes to digital finance, all regulators naturally focus on preventing fraud and money laundering and here all countries, including India, have been going for the risk-based approach laid down by the Financial Action Task ForceThis has led to setting caps on quantum and frequency of appropriate KYC stipulations etcInterestingly, from the consumer point of view, fraud is not the only, or even the main, concern that inhibits going digitalA recent CGAP report, Doing Digital Finance Right analysed research findings from sixteen countries to conclude that consumers are hesitant to adopt digital modes, thanks to seven key issues:

  • Inability to transact due to network/service downtime
  • Insufficient agent liquidity or float, which also affects ability to transact
  • User interfaces that many find complex and confusing
  • Poor customer recourse for grievances and queries
  • Nontransparent fees and other terms
  • Fraud that targets customers
  • Inadequate data privacy and protection

Digital transactions are clearly catching on in the country now and if we are to capitalize on this trend and bring low income consumers onto the Digital India platform, it is important to build trust in the new ways of transactingFor this, everyone - the government, RBI, TRAI, financial and telecom service providers- must coordinate their efforts to ensure an enabling environment for increasing adoption across all parts of the country.

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