As the dust settles down on demonetization it is pertinent to ask if the process of demonetization is really a game changer for digital payments. To get a sense of where we can go, we might want to have a quick look at what has happened in the past.
India is actually not new to 'cashless' economy. Both debit and credit cards are available for more than a decade now. However, both the instruments had limited traction pre-demonetization. As per Concept Paper on Card Acceptance Infrastructure released by RBI last year, 92% of the debit card transactions were cash withdrawal transactions and only 8% were point-of-sale transactions! This could have been because of three reasons. One, consumers were not sufficiently aware that cards can be used for payment. Two, there were not enough merchants who accepted cards. Three, consumers prefer hard, tangible cash for transactions.
First two problems were partly related to two other players in the ecosystem: Payment Instruments Providers (Wallets, Banks etc) and Merchants. A cash transaction is costly for the bank (due to the logistics involved) and banks persistently tried to create awareness among the customer to use cards over cash. However, the necessity to use cards was never created. Merchants were slow to adopt to the digital payments. The most often cited reason was the transaction overheads and the fixed operational costs.
Demonetization suddenly threw a challenge to both merchants and bankers. However, they seemed to have taken it well. Thanks to the 24X7 media coverage, massive publicity drive by the banks/wallet companies and the need to find alternate ways for payment, customers are more aware of the payment options. As the timing goes, we also have more nimble and focused payment banks emerging at the same time. They are continuously building and improving user-friendly payment apps and pushing for its adoption.
Industry-wide initiatives such as Bharat QR (which obviates the need for an electronic data capture or EDC machine), NPCI backed UPI (which has lower transaction costs) and recent cuts in duties on bio-metric and EDC machines are expected to substantially bring down digital transaction costs. With GST coming in soon reasons for accepting digital payments would outweigh reasons to not accept. This should eventually increase the adoption in the so-called 'long-tail' of the merchants as well.
Demonetization made have customers more aware, banks more focused and merchants less averse to accepting digital payments. All these factors culminated in high velocity growth of digital transactions in the months following demonetization. But as more cash is released back in the system, customers are slipping back to the original preferences. So we are still left with the last problem: How do we change the consumer habits?
Most of the marketers would agree that changing consumer behavior is one of the most difficult problems to solve. Looking at the e-commerce industry direct, indiscriminate incentives are expensive and not sustainable. On the contrary, cab aggregators, have shown that the customers would gravitate towards an alternative if there is a clear value proposition. Digital payments will become popular if customers see it not only as alternative to cash payments but also something more.
Card less payments systems bring a big advantage over card based systems: these are always attached to a mobile app and thereby bring all the benefits and possibilities of a mobile app. For example, a payment app can be used to offer queue less checkout to the customers. Customers simple scan the products they want to buy, pay on the app and get out of the store without standing in the queue. Apart from such futuristic models, there are many more established ways. A co-branded card is a perfect example of retailers and banks joining hands to create a win-win situation: customers get disproportionate benefits provided they exhibit loyalty for a brand and stick to using the card for payment. Thanks to the cutting edge CRM systems such kind of tie-ups can be done in far more effectively. For example, a bank can send an exclusive offer to its loyal customer through the payment app when the customer is in the vicinity of a partner store. Customers get relevant offers, retailers get revenue and the payment app is used by the customers. All of these position digital payments as something more than alternate to paying by cash. If executed well with the right set of technologies, these innovations have potential to not only increase the digital payment adoption and thereby forever change the way in which retail stores operate.
It is said that developing countries have a distinct advantage over developed countries: they can skip a step in technological progress and simply move to the next stage. Developed countries adopted landline phones first, mobiles later. By the time India
to could improve its wired network, cellular technology was already available for cheap. Similarly, by creating a solid value proposition for adoption, India can skip the step of plastic card and move directly to mobile based card less payments. That will truly set an example to the world.
The article has been pen down by Mayur Ekbote, Director-New Products, Capillary Technologies.