Digital money opens new window of opportunity for the unbanked

Indians have long had a cultural affinity for cash but a turnaround is in the air with the unbanked segment willing to adopt e-wallets and mobile app-based payment solutions.

If the image of a farmer with a laptop is the quintessential symbol of India in the internet age, then a sign saying digital payment accepted outside a street vendor’s stall announces India’s arrival in the digital money era.

India has taken quick and bold steps to move from a cash-dominant to a cashless economy, touching the lives of not just the tech-savvy and finance-savvy but also the unbanked, uncarded Indian in cities and villages across the country.

The momentum towards a cashless economy that began a couple of years ago promises to place digital money solutions in the hands of those who have never held a credit card or had a bank account. For the first time, cash is not the only option for this unbanked population of over 250 million Indians. If this population belonged to one country, it would constitute the world’s fifth largest country, ahead of Brazil. This segment now has an opportunity to spend, send and lend money digitally without going through the hassle of cash-based transactions.

India – Ripe for the e-payments market

Indians have had a cultural affinity for cash but we are now seeing a turnaround. The country, which was quick to move from fixed line phones to mobile handsets and smartphones, is showing strong potential to adopt e-wallets and mobile app-based payment solutions over cash.

A number of factors are contributing to this trend.

According to the Telecom Regulatory Authority of India, the country has over one billion mobile phone subscribers. A study by the Associated Chambers of Commerce and Industry of India and Deloitte found that the number of smartphone users is fast growing – from 240 million today to over 520 million people by 2020.

The Government of India is working towards creating an ecosystem for digital payments - demonetisation in November 2016 provided a push towards a less-cash society, Aadhaar has created the world’s largest biometric identity system, and the Bharat Interface for Money (BHIM) unified payment interface-based mobile app for faster e-payments. The Reserve Bank of India has taken several steps too – expanding the digital payments infrastructure at merchant sites, relaxing prepaid payments instruments norms, providing incentives for digital payments at fuel stations and toll gates, and launching a Bharat QR code for card payments at merchant sites.

The e-commerce boom is leading consumers to adopt digital payment options for online and mobile purchases. India is a thriving marketplace of innovative solutions around digital money – e-wallets, virtual and physical cards, peer-to-peer lending, money transfers, and digital payment solutions.

A report by Google India and the Boston Consulting Group projects that the digital payments market in India will reach $500 billion in the next four years, with non-cash transactions overtaking cash by 2023. It will be a mega jump for a country where in 2015, cash-based retail transactions constituted 78 percent.

Forrester’s Online Retail Forecast: 2016-2021 shows that India will experience the fastest growth in the e-commerce sector in Asia -- from $16 million in 2016 to $64 million in 2021. Morgan Stanley estimates the e-commerce market to reach $200 billion by 2026, with 475 million online shoppers compared to 60 million in 2016.

Empowering the unbanked

Digital money solutions are opening up a new world of possibilities for those who have been outside the world of banking and finance.

All they need today is a smartphone, a 3G connection and a mobile app to shop, pay bills, make money transfers and get loans. For the unbanked sector, this is a giant leap from dealing with cash and using informal - and often unsafe - means to transfer, save, borrow or lend funds. Now, they can tap a QR code at a contactless point of sale or swipe their smartphone for instant payments or money transfers.

Imagine the ease and convenience that mobile wallet solutions bring to this segment. They can now use the top-up facility at a neighbourhood store to load currency into the digital wallet app in their smartphone. If the app has a mobile wallet operating system, it will convert the app into an instant payment facility and an instant card.

Let’s take the example of a taxi operator that spends significant time and effort to track payments its drivers make at fuel stations and toll gates. It can now give drivers a mobile payment app along with a card that they can swipe to pay for these expenses. This auditable, cashless option makes managing fleets easy and hassle-free for both small and large taxi operators, hotels and delivery companies.

The Digital Money Index 2017 published by Citibank and Imperial College London termed India a “stellar performer” on readiness factors such as government and market environment, financial and technological infrastructure, digital money solutions and propensity to adopt. The report recommends other countries follow India’s example of progress built on strong fundamentals.

India needs to retain this momentum with innovative solutions that bring more and more people into the digital money fold.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)