Digital Infrastructure: Core of Governance
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Less Cash India - A Vision to Reality
Why is ‘cash’ dominant in India?
India has traditionally been a cash-based society due to following reasons:
1. Lack of payment acceptance infrastructure.
2. Bank accounts perceived as accounts for savings rather than account for payments.
3. Cash-based payments seem to be zero-cost and hassle-free as the cost of cash is distributed and invisible.
What are the drawbacks of cash-based transactions over cashless transactions?
1. Cash has an inherent benefit of being universally accepted and instantly usable.
2. However, there is a cost of cash in the form of expensive cash management infrastructure.
3. This includes the cost of printing cash, bill collection centers for utilities, networks of ATMs and cash deposit machines, cash in/cash out counters in banks etc.
4. Digital payments will lead to a significant reduction in such costs due to inefficiencies associated with cash.
5. Cash is anonymous and there is no traceability while digital payments are traceable.
6. In case of digital payments, there is a channel for dispute resolution with merchants.
7. Also, due diligence is undertaken as per the requirements of the Government to remove fraud or spurious merchants.
How are online payment modes helpful?
1. A few years back, card-based payments were the only mode of digital payment which had less market penetration.
2. With the advent of QR code-based payment, today there are over 1.2 crore merchants having an option to pay through their wallet or bank account.
3. QR code-based payments do not have traditional costs associated with PoS terminals.
Which factors give wallets an advantage over bank accounts?
1. India has over 100 crore bank accounts but the usage of bank accounts for digital payments is less than 5 crores.
2. Most people find payment through bank accounts cumbersome or risky.
3. Prepaid instruments or wallets are a huge hit among customers as they can set it up easily using their mobile numbers.
4. The number of wallet users has been increasing consistently despite new regulations mandating the need for KYC in a given time frame.
5. The advent of UPI has simplified use of bank accounts for payments for people who are comfortable to pay directly from their bank accounts.
What are the initiatives taken so far?
1. Government of India envisions financial inclusion of all sections of the society.
2. Four key elements of financial inclusion are payments, credit, investment and insurance and technology can truly enable these elements for driving financial inclusion in the country.
3. The JAM trinity (Jan Dhan, Aadhaar, Mobile) has ushered a digital revolution ensuring that marginalized sections of the society are also brought into the financial mainstream.
4. The benefit of Government schemes and subsidy now flow directly into the bank account of the beneficiary, thereby eliminating middlemen.
Where should the focus be?
The key to propagate digital payments is to ensure trust in the system both from the customer as well as the merchant.
1. Strong digital payments infrastructure has a multiplier effect on the economy as users get access to credit, based on their transaction history.
2. 2-factor authentication provides additional security in digital transactions and India is one of the few countries to have this feature.
3. Financial literacy of users and technology will play a key role in the security of digital transactions.
4. The passage of Personal Data Protection Bill with suitable safeguards will help in ushering a data-safe digital India.