Demonetisation has led to a surge in digital payments across the country with digital wallet providers taking the lead in this direction
Demonetisation has led to a surge in digital payments across the country with digital wallet providers taking the lead in this direction. The growing popularity of digital payments has helped to push the less-cash initiative in a big way, paving the way for greater accountability and transparency in the system, besides curbing the growth of the shadow economy. However, most digital payments solutions cater only to smartphone users, keeping the growing base of feature phone users outside the scope of the less-cash initiative. Also, with the aim of ubiquitous internet connectivity still distant in most parts of rural and semi-urban India, a data led digital payments strategy will always come up short when it comes to anchoring India’s move into less-cash society.
Therefore, we need to look at other options, like feature phones, which occupy a significant share of the mobile user base in rural and semi-urban population, to anchor India’s move to a cashless economy seamlessly as well as quickly. Feature phones will continue to remain the preference of people in small towns and rural areas who have little need for, or money to buy smartphones. With sales of 9-10 million units a month in India, India’s feature phone market is about 65 per cent of the total mobile phone base. Even IDC has lowered its smartphone sales projection to 112 million units for 2016 from 135 million. Therefore, for all practical reasons, any holistic strategy to spread the less-cash initiative across the length and breadth of India should cover both smartphone users as well as feature phone users.
A less-cash initiative is not possible without robust last mile merchant acceptance networks. However, setting up the acceptance networks is fast becoming an unviable proposition for acquirer banks because of high CAPEX, high MDR, lack of last mile banking, and costly POS equipment. Between Oct 2013 and Oct 2015, debit cards registered a growth of 64 per cent, ATMs grew by 43 per cent while POS machines increased by 28 per cent only. So, while debit cards and ATM grew, POS acceptance networks remained stagnant. Additionally, the growth of acceptance networks has concentrated mostly around urban centers, which has left out more than 2/3rds of the population living in rural India. On the acceptance front, even if the government were to reduce import duties on POS machines today, the paperwork needed for registration would still provide a significant barrier to adoption because of the chronic mistrust for paperwork of any kind in rural India. Due to these factors 98 per cent of small business units in India lack the ability to transact digital payments. Given that the small business segment in India supports 50 crore lives, there is a strong case for digital payments that leverage ordinary features phone for making quick and seamless payments.
Therefore, India’s digital payments strategy is highly commendable because it is comprehensive as well as forward looking. While other countries are focussing on user experience of the digitally evolved customers or bottom of the pyramid segment, India’s digital payments gambit focuses on both the segments; no wonder we see digital wallets as well as payments banks growing side by side. The government realized very quickly that India is too vast and too diverse to fit into single digital payments strategy and therefore it provides its citizens with a broad choice in payment options which includes Bank Cards, Digital Wallets, Aadhaar Electronic Payments System (AEPS), USSD, UPI and POS.
For feature phone users, USSD based digital payments provides a favourable communication channel because it is able to leverage existing telecom networks to provide quick, reliable, cost effective, scalable digital payments solutions across the length and breadth of the country. Contrary to popular myth that USSD is unpopular as it is based on an old technology, the truth is quite different. With the notable exception of M-Pesa in Kenya, the majority of large scale mobile financial services deployments in the developing world use USSD as their primary mechanism for communication between customers and their mobile payments platform. These include bKash in Bangladesh; Wing in Cambodia; EasyPaisa in Pakistan; Tigo and M-Pesa in Tanzania and EcoCash in Zimbabwe, to name a few. Support for USSD based digital payments has come from several authorities, including the GSMA. GSMA has documented the success of MNO-led business models to advance financial inclusion – with a number of countries having registered more mobile money accounts in a matter of years than bank accounts opened in decades. USSD based digital payments services are scalable because they use a mobile network’s signaling channels for providing a robust channel for communication. USSD services are pervasive because they do not require smartphones nor do they require data connectivity making it suitable for feature phone users. It is quick and interactive, supports multiple languages, and various options, and is easy to learn and use. It provides enterprise with better tracking facilities, enabling enterprises to understand usage patterns, and thus helps in providing better service offerings. Another big advantage is that USSD services are SIM independent, which is an improvement on other digital payment options that require the user to change their SIM.
Keeping with its aim of providing an inclusive digital payments strategy, the government has formed the National Unified USSD Platform (NUUP) for providing ubiquitous USSD based payments services. NUUP’s USSD platform can be used for checking banking account balance, generating mini statement, fund transfers. For service activation, the user will require an account in a bank and any mobile phone on GSM network. Once the mobile is linked to the user’s bank account, a Mobile Money Identifier and Mobile Pin is initiated. In order to access the service menu, the user dials *99# on their phone, and then proceeds with the payments by entering the beneficiary mobile number, beneficiary MMID, amount and then sending the request by entering Mobile PIN and the last four digits of the account number.
However, the success of any new digital payments strategy, like the government’s USSD service depends on the government’s ability to provide regulatory support, ensure quick and seamless services, create robust networks as well as facilitate transactional security. On the regulatory front, the government has taken several measures on this account, like setting up the National Unified USSD Platform, reducing USSD charges from 1.50 to .50, allowing 8 steps in a USSD session from the usual five, which have helped in making the services more viable for users. Given that the end users benchmarks new payments services with the ease and convenience of using and handling cash, the government has built the service on IMPS platform for quick and seamless services. Also, with the objective of enabling interoperability, NITI Aayog CEO Amitabh Kant said, “National Payments Corporation of India (NPCI) is working towards making USSD simple and convenient, it will also be linked with UPI. So, we will have a new version of USSD with many strong and robust, easy-to-handle features.” The government is also talking with various parties to fix accountability for USSD failures, with an eye on improving customer’s experience with the service. Security is inbuilt into the system, by various measures like MMID and MPIN, Aadhaar authentication ensuring security of payments. Finally, the test of the robustness of any system is in its ability to spur innovations, the benefit of which ultimately passes on to the customer. USSD based digital payments are enabling innovations in digital payments, with a leading online company providing USSD based payments acceptance solution that bypasses dongle based physical POS. In conclusion, it must be said that USSD based digital payments system provides a robust and scalable digital payments solution that works pan India. It is an idea which should be leveraged to the hilt because it has the potential to push government’s agenda of less-cash societies in a cost effective manner.
[Copyright by Aditya Dhruva, Vice President and Head of Messaging & Broadband Solutions, Mahindra Comviva]