Sunday, December 4, 2016

Long march towards Digitization and cashless society in India

It has been a little over three weeks since the Indian government took the dramatic step of demonetizing large denomination currency notes – of Rupees 500 and 1000. A lot has been written and debated about the short and long term impact of the Government’s bold move on the lives of a billion Indians.
As an Enterprise Architect of Indian origin, I have been watching the rollout with more than casual interest. There are lessons in the ongoing Indian digitization experiment that technologists around the world can learn from.
The digital payment market in India is at a nascent stage, but nevertheless has a number of domestic and global players, each with millions of users. The market is led by players like PayTM, MobiKwik , Ola Money, Citrus Pay, PayUMoney, ICICI Pockets, Citi Masterpass among others. These Digital payment providers have begun to prepare for wider adoption for the wave following digitization.
The media and technology analysts are also adding a sense of excitement, with articles that proclaim how “India’s Cash Ban Is the Best Thing to Happen to Digital Payments” In this article, the founder of PayTm Vijay Shekhar is quoted saying
“Those fishmongers, vegetable vendors and rickshaw drivers count among the thousands who’ve signed onto India’s largest digital payments service since Prime Minister Narendra Modi triggered a nationwide cash crunch when he scrapped the country’s two largest note denominations.” ( link)
Banks and financial institutions are also looking beyond the short term roadbumps to the long-term opportunities ahead. The front-office bankers gamely took on the challenge of dealing with teeming masses waiting in lines to convert their defunct currency notes. However, banking executives and technologists are already looking ahead. For instance, ICICI, a leading private bank sent a detailed email informing customers of the “state-of-the-art digital channels of internet, mobile banking, Pockets digital wallet and cards,” highlighting services that customers can access via internet and mobile platforms
The enthusiasm among the bankers and digital payment providers and startups is contagious indeed. It is very likely that some of the new, innovative payment modes will lead to evolution in day-to-day financial transactions. The opportunity hinges on leveraging ubiquitous mobile phones in a creative, intuitive and secure manner.
I wonder if it’s too early proclaim advent of the cashless-society in India?
Designing for trust in a culture with low trust of public institutions is a challenge to be addressed. Same goes for the ability to scale payment gateways across a diverse demographic. Many of those taking to eWallets and online bill payment are already in the formal banking system: they happen to be urbane, tech-savvy middle-class professionals who were sitting on the fence when it came to digital wallets. Service providers and small-businesses catering to this clientele are grudgingly following suit. Wider adoption, however, will depend on a transformation at the bottom of the pyramid. A few examples of the millions of people who habitually transact in cash in India:
  • The semiliterate, blue-collar workers in unorganized sectors working in small scale industries, factories and other jobs are generally unbanked
  • Workers in informal sectors in urban India – maids, household workers, drivers, security guards, building construction workers and others drawing minimum wage
  • Hawkers, vendors, small-shops, tea-stalls and roadside eateries in street corners across cities and villages
  • Rural India is largely agrarian, and agricultural income earned in India is exempt from tax. Cash is the king in this sector and farmers, growers and landlords have little incentive in going cashless (link: www.incometaxindia.gov.in/Tutorials/11.Tax free incomes final.pdf )
Most of the folks in these sectors are habits of creature, and love nothing more than counting cold-hard cash after a day’s labor. Weaning them away from the culture of cash to a world where their earnings remain in virtual world in digital wallets they don’t comprehend may take some creative persuading and goading.
Another challenge that needs to be addressed is the issue of merchant-fees charged by Digital payment providers. Businesses and merchants, especially those serving customers at the bottom of the pyramid are going to be loath to shell out a fee, however small. This is not a trivial problem. Even credit card networks with American Express, Visa and Mastercard in mature markets like the US and Europe continue to struggle in courting small businesses that are hesitant to pay the 2-3% transaction fee for Point of Sale transactions. Even there, cash is sometimes the king.
Bottomline: We are talking about a cultural transformation that needs to accompany technology adoption. Those of us who have spent years in technology transformations realize that success of technology innovations hinges on user buy-in at the last mile.