Innovative technology must break down the process of digital payments and make it simpler, while still giving it the security and transparency that add value to transacting digitally.
Prior to demonetisation, the digital payments vs. cash match-up in India seemed not just unfair, but ludicrous. Most Indians didn’t have bank accounts; further, as recently as in 2011, only 10.1 percent of the population had access to the internet. Over 90 percent of all transactions were conducted in cash, and a majority of cashless transactions were done through the use of debit and credit cards. Then, as the Prime Minister declared 86 percent of the Indian currency to be invalid in one fell swoop, everything seemed to change very quickly.
Coerced by the lack of other options, many Indians took to using digital payments, helped to a large extent by their smartphones which allowed users to access and use mobile wallets.
With over 300 million smartphone users and nearly 500 million people having regular internet access, the digital medium was a convenient alternative to cash payments. According to the Payments Council of India, growth in the aftermath of demonetisation for digital methods of payment was between 40-70 percent, and even with cash re-entering the Indian economy, digital payments continued to grow and prosper. The Unified Payments Interface (UPI), instant real-time payments system, developed by the public sector National Payments Corporation of India, clocked a colossal 145 million transactions in December 2017, transferring Rs 13,144 crore. However, while the pendulum has swung in the direction of digital payments, there is still much ground to cover.
With currency value in circulation reaching 91 percent of pre-demonetisation levels, digital payments have eked out a substantial space for themselves, particularly in urban areas. However, this space is still miniscule relative to the economy at large, which has returned to functioning via cash in significant measure. The expectation was that the added convenience, transparency, and security of digital payments would persuade people to shift to this more efficient method of exchange. If these benefits are in any way mitigated or removed, then there is no incentive for Indians to switch from cash to digital methods of payment.
This takes us back to accessibility. The success of digital payments relies entirely on their ability to be a substitute for cash as a medium of exchange. However, cash works everywhere because of its universal acceptability and ease of use. To use digital payments, the list of requirements is long and not always plausibly accessible. These include a smartphone, a merchant/point-of-sale with the right equipment and systems, and a stable internet connection for both the parties. More than three-quarters of the citizens of our country have no access to a smartphone and more than half of smartphone users also don’t have access to the internet on a regular basis, let alone an omnipresent data-enabled mobile network.
With a billion Indians lacking the basic instruments to experience such transactions, how will digital payments ever replace cash in any meaningful way?
Digital payments were seen as the solution to cash. The way digital payments are being deployed still creates serious hurdles. What, then, is the solution to this?
For digital payments to adequately replace cash, they must be accessible to a much larger pool of people and be substantially easier to use. The current digital payments systems are inadequately developed for universal accessibility and are dependent upon certain infrastructure. The SMS-based payments system developed by the government is still inadequate, as seen by the low usage of the system. The conventional digital payment is still done through a smartphone and relies entirely upon the use of the internet; it also requires some fumbling, QR code scanning, or OTP retrieval. Innovative technology must break this process down and make it simpler, while still giving it the security and transparency that add value to transacting digitally.
The use of Sound Wave and/or NFC technology is a potential solution. They both require proximity between a digital device and a scanner, helping the convenience aspect of the security process to take a quantum leap forward. However, NFC technology is expensive and only found in high-end smartphones. Sound Wave technology, on the other hand, is even compatible with feature phones – already owned by nearly 70 percent of all Indians. Further, Sound Wave technology doesn’t require an internet connection to operate either!
For digital payments to actually replace cash globally, it is vital for everyone to be able to use it to transact seamlessly.
Mobile or digital payments can replace cash only when these payment methods are as intuitive or frictionless as paying by cash. Especially in India, what consumers need in order to transition to a more comprehensive digital economy is a fresh look at digital payments – one that makes a digital transaction more accessible, intuitive, and convenient.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)