By Kris Gopalakrishnan
Harvard University’s Kennedy School published a working paper by Peter Sands in February 2016, ‘Making it Harder for the Bad Guys: The Case for Eliminating High Denomination Notes’ (goo.gl/Vqr9Ev). It posited that eliminating ¤500, $100, CHF1,000 and £50 notes would make the ‘bad guys’ face higher costs and higher risks of detection. Sands said that one of the reasons demonetisation is easier to implement today is the accessibility and costeffectiveness of digital payment alternatives.
Post-demonetisation in India, we have witnessed ministers, bureaucrats and RBI officials exhort citizens to adopt digital payments. The government has set up a committee of chief ministers to identify best practices to promote an economy based on digital payments, and provide a roadmap for implementation. GoI has roped in Nandan Nilekani as its digital adviser in this effort.
It is important to assess and debate how we can quickly move from a predominantly cash-based economy to one where digital payments predominate. Bhaskar Chakravorti, Ravi Shankar Chaturvedi and Benjamin Mazzotta of Fletcher School, Tufts University, assessed the Indian context in a May 2016 Harvard Business Review paper, ‘The Countries That Would Profit Most From a Cashless World’ (goo.gl/y79sQQ).
India has a high absolute cost of cash. This includes banks’ cost of reaching cash to citizens, total cost borne by citizens to access the cash, and costs of having a shadow tax-evading economy. Prima facie, there is potential for India to adopt digital payments as they reduce overall cost of cash. However, India’s digital inclusiveness score is below global average. Only about 30% of the over one billion mobile phones in India are smartphones. It is imperative that digital payments cater to the lowest common denominatorof those at the bottom of the digital divide and have only a feature phone.
Disrupting Digital Divide
The highest mindshare among those at the top of Indian digital divide is for the Unified Payments Interface (UPI) from the National Payments Corporation of India (NPCI). The focus to start minimising the digital divide barrier should lie in the NPCI’s *99#, a GSM (Global System for Mobile)-basedUSSD (Unstructured Supplementary Service Data) for feature phones.
This has the potential to have a bigger impact in minimising the immediate disruptions caused by demonetisation and including a larger proportion of Indians under the umbrellaof digital payments. After all, more than 70% of India’s mobile users still have a feature phone with no internet capability. The *99# service provides functionality to transfer and receive up to Rs 5,000, and supports multiple Indian languages.
Banks do not charge for the *99# service, but telcos charge 50p per transaction. While this telco fee is about afifth of what is charged by the National Electronic Funds Transfer (Neft), it is still high enough to act as a disincentive for small payments. The *99# service is a good beginning to go cashless.
But it is important to also provide a presence-less Aadhaar-based identity authentication-driven product like the UPI to make higher-value cashless digital payments more trustworthy and cost-effective.
Based on GSM Association projections, smartphone penetration in India is set to increase from about 275 million in 2016 to 670 million by 2020. Even after four years, it is estimated that only about 50% Indians will have a smartphone. A shortcut approach to pull more Indians into highervalue Aadhaar-authenticated digital payments like UPI is probably to share a smartphone among multiple residents in a village.
Taking a cue from the original use case of the Simputer — an Indian hand-held computer for bottom-ofthe-pyramid users in the early 2000s —it may be beneficial to provide each village with a 3G or 4G smartphone capable of capturing biometric information. The custody of the village smartphone can be with a trusted person like a panchayat functionary or a postman.
Each resident gets a secure digital (SD) card that holds her information on identity and financial transactions. While the government or government-authorised telco can own the smartphone, they can recover a nominal monthly fee from every user for using the smartphone and SD card. The custodian of the smartphone can be trained to operate the device and UPI-based financial payments apps. Once a resident’s SD card is inserted, a presence-less identity authentication is done leveraging the India Stack and Aadhaar infrastructure. The custodian then helps the resident to make digital payments, confirm receipts, check bank account balance, etc.
Managing Mobile Money
The revised information of financial transactions is then updated on the resident’s SD card. Currently, there are no bank charges for transacting using UPI, and it has a daily limit of 20 transactions and Rs 1lakh. Only data consumption is charged by the telco. An important assumption is that grid and backup power together will be sufficient to ensure uninterrupted digital payment operations. The recent cyclone in Chennai is an eye-opener on how things can go awry. The government needs to ensure that telcos provide more than the customary few hours of power backup they provide for cell towers now.
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