Contactless payment cards: India’s mass-solution for a ‘less-cash’ society

Contactless cards leverage the same dynamic security as EMV contact chip-enabled cards making it a natural progression for banks and consumer transitioning into it from their existing magstripe cards.

The recently released Reserve Bank of India’s (RBI) Annual Report 2017–18 throws up a contradictory fact. The value of digital transactions[1] in FY18 went up to Rs 1,373 lakh-crore from Rs 1,121 lakh-crore in FY17 and Rs 920 lakh-crore in FY16.

Looking at this, one can assume that we, the Indian citizens, are transacting digitally more frequently and so are migrating away from cash. However, when we look at the currency in circulation data, it doesn’t paint the same picture. The currency in circulation went up to Rs 18.29 lakh-crore in FY18 from Rs 13.35 lakh-crore in FY17 and Rs 16.63 lakh-crore in FY16.

While post-demonetisation India has witnessed the widespread uptake of digital payments, there still lies a long road ahead of us to become a less cash-dependent economy. Since the ease and convenience of cash is what has helped it stay relevant, any replacement to cash will need to be equally fast, seamless and intuitive as exchanging cash. Enter the world of contactless payments!

With India making rapid strides in bridging the digital payments divide, the recent directive from the Finance Ministry advising banks to issue Near-Field Communication (NFC)-enabled contactless credit and debit cards could be a catalyst in the right direction.

As the name suggests, contactless payment cards let users make payments with a mere tap at the point-of-sale (PoS) terminal. Making payments faster than ever, transactions with a contactless card takes three seconds or less. This means a shorter wait time and quick payment experience for customers, especially across mass use cases such as transit. As data from Transport for London - the city’s premier transport authority shows, once introduced contactless cards more than doubles the use of digital payments for tickets and at the cost of cash.

On the retail front, this means more business for merchants who earlier would lose customers owing to long queues. With small-ticket products (typically below Rs 2,000) accounting for the majority of retail purchases, contactless cards are the perfect queue buster technique for every retailer. With the hassle of managing large quantities of cash reduced, it lets the retailer focus on adding incremental revenues through up and cross-selling.

In Australia, researchers at the Reserve Bank of Australia found that around one-third of all PoS transactions were conducted using contactless cards in 2016, which is a 300 percent jump from 2013. During the same period, consumer payments made in cash came down from 47 percent in 2013 to 37 percent in 2016.

Today, nearly 94 percent of transactions are contactless in Australia. A recent survey by The Guardian revealed that cash usage in the UK fell to 40 percent in 2016, against 62 percent in 2006, owing to the widespread adoption of contactless cards.

The collective jump in the business of various digital payment platforms post demonetisation is a testimony to that. That said, there still exists a few roadblocks in India’s path to becoming a truly cashless economy.

According to a Bain & Company and Google report, India has the second-highest number of active internet users globally - 390 million - but only 160 million of them transact online. Out of those who transact online, 54 million users stopped after their first purchase. Compared to that, according to the latest RBI statistics, there are more than 980 million debit and credit payment cards in circulation and nearly 77 percent of total card transactions are at ATMs. This clearly shows that citizens still prefer using cash and by making card transactions easier at the PoS, there exists a huge opportunity to change the way India makes payments.

Additionally, with the December 2018 RBI deadline of re-carding magnetic strip cards with EMV chip cards and the Ministry of Finance communication on NFC-enabled contactless payment cards, India is one step closer to its goal of reducing cash dependence.

To make way for the widespread adoption of contactless cards, payment card providers are also swiftly upgrading their infrastructure, thereby increasing the touch points that accept such technologies.

Contactless cards leverage the same dynamic security as EMV contact chip-enabled cards making it a natural progression for banks and consumer transitioning into it from their existing magstripe cards.

While today citizens have a plethora of digital payment methods to choose from, the failure to provide a seamless payment experience by most of these systems drives people back to using cash.

By simplifying payments to a mere tap, which is not only seamless, quick and secured but also as intuitive as exchanging cash, contactless cards can increase stickiness among customers and help India make a shift towards becoming a less cash-dependent and more transparent economy.

[1] Digital transactions include bank transfers such as RTGS, NEFT, ECS, IMPS, UPI, debit and credit cards and point-of-sale transactions, among others

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