Technology innovation and policies set to fuel India’s move to a cashless economy

It is a globally accepted fact that moving to a cashless economy is good for growth. Several studies have indicated that the adoption of alternative methods for money transfer and payments provide benefits to all actors in the ecosystem – the government and central bank, commercial banks, the industry as well as the end consumers.

From the point of view of the Government of India and the RBI, such a move will help in the reduction of operational costs resulting from management of cash and counterfeit prevention, help with the objective of increasing financial inclusion for the underbanked and the poorest sections of the society, and help counter tax evasion and improve collections.

For commercial banks and the new breed of payment companies, it will help provide  superior customer services aligned to the needs of today’s digital savvy customers, while reducing their operational costs. Banks can look at reducing the number of ATMs and launching “cashless” branches that are more focused on providing value-added services to its clients and in turn improve their revenues. For payment service providers like Paytm and Mobikwik, their core business model is based on cashless payments and they will be big beneficiaries of reduction in cash transactions.

For the industry, cashless means increased productivity in retail, greater efficiency in trade processes and faster B2B payments. For the end consumers, the big drivers are better customer experience and conveniences aligned with their new digital preferences for everything from shopping to making payments to entertainment.

Countries such as the Scandinavian group of Denmark, Sweden, Norway, Finland and Iceland lead the world in cashless payments and analysts believe these countries could become completely cashless by 2030. Others like the US, UK, Singapore, Japan and South Korea are not far behind.

Can India leapfrog and catch up with these countries? It certainly can if the right mix of policy framework and technology innovation come together.

Policy Measures

The Government of India and RBI have consistently been taking steps towards moving India to a cashless economy. After the growth of Internet Banking and payments through NEFT (National Electronic Funds Transfer), RTGS (Real-time gross settlement system) and IMPS (Immediate Payment Service), the following are some of the recent policy decisions and programs rolled out to help facilitate increase of non-cash transactions:

  • Pradhan Mantri Jan-Dhan Yojana, a Government scheme that aims to provide universal access to banking facilities for every household.
  • Granting of banking licenses by the RBI under new categories like Payment Banks and Small Finance Banks to improve  financial inclusion for sections of the economy not being served by traditional banks.
  • Launch of the RuPay by the National Payments Corporation of India, a new card payment network at much lower and affordable cost to Indian banks than Mastercard or Visa.
  • Launch of the Unified Payments Interface (UPI) by the NPCI which enables e-payments to be made as simply as sending a text message using a virtual identity and mobile authentication.
  • Launch of the Bharat Bill Payment System (BBPS) that aims to provides a single platform to consumers for all utility bills such as electricity, power and telephone, as well as municipal taxes.
  • Relaxation of the rules for mandatory PIN based authentication for card transactions up to Rs.2000 by the RBI, a measure that will allow low-value contactless transactions to be made in a ‘tap and go’ mode and accelerate contactless payments
  • Potential tax concessions for businesses and consumers who are using e-payments over cash

In addition to the above, the Telecom Regulatory Authority of India (TRAI) is also helping drive adoption of mobile payments with measures like the USSD (Unstructured Supplementary Service Data) technology for mobile financial services similar to the hugely successful m-Pesa.

Technology Innovation

As the various policy initiatives gather steam, they will need to be supported by a major investment in technology innovation. The good news is that India’s FinTech boom will help provide the innovation impetus needed for this ‘no cash movement’.

The first wave of technology innovation in the space of payments in India saw companies like Paytm launch its services and the traditional banks launching their mobile wallets. This has created a good base of digital savvy customers that are now ready to consume further innovation in the payments landscape.

The next wave of technology innovation that will drive the move to a cashless economy will be the development of more mature mobile banking options for the rising number of smart phone users and a spurt in contactless payments.

As an example, DBS launched ‘digibank’ that allows consumers to open an e-wallet for and then convert to a full blown savings account with attractive features, all using an online process leveraging their Aadhar number and biometric authentication.

Contactless payments are setup well for their increased adoption at POS (point of sale) terminals in retail outlets, metros, toll booths, parking lots, etc.  Globally, contactless payments are already replacing the tradition credit card and debit card swipes. One of the best case studies in contactless payments is the MobilePay app by Danske Bank in Denmark.

Mobile leaders Apple and Samsung are also going global with their payment technologies ApplePay and SamsungPay. After the initial launch in the US, ApplePay is now supporting payment cards issued in the UK, Canada, Australia, France, China, Singapore and Hong Kong. It is expected to launch in India in 2017. Similarly, Google Wallet is also making further investments in expanding its Google Wallet globally.

For contactless payments to become ubiquitous though, it will need a substantial upgrade of the POS terminals. Not only will the number need to increase, they will also need a technology upliftment and become NFC (Near Field Communication) enabled. The RBI estimates that there will be a requirement of 20 million POS terminals in the country as compared to current number of just over 1 million.

This change is happening slowly but surely. Visa recently crossed a major milestone in India with over one million Visa payWave contactless cards issued with acceptance at more than 100,000 merchant locations across the country. Mastercard is also expanding its ‘tap and go’ solution called Paypass in India.

The wearables technology will also help increase contactless payments in a big way. Innovation in markets outside India is seeing contactless payments built into everything from smartwatches to fitness bands to rings to glasses. Closer home, Goqii has launched a new fitness band with ability to make contactless payments via NFC.

So, in summary, things are looking up for India to make rapid strides towards the vision of being a cashless economy. We have a proactive government and central bank wanting to drive change and banks and Fintech companies creating innovative and intelligent solutions to implement the change.

One additional step that the GoI and RBI can take to help accelerate this process is to setup an Innovation fund. We can learn from the Monetary Authority of Singapore (MAS) which has committed $225 million SGD over the next five years to growing the Fintech segment in Singapore.


The article was originally published in The Hindu Business Line on September 1, 2016  and is re-posted here by permission.

Deepak Atmaram Kinger

Vice President, Banking & Financial Services, Virtusa. Deepak Kinger is a Vice President with Virtusa and leads the Banking and Financial Services business for the Asia Pacific region. He has over 20 years of international experience in financial services across Retail, Commercial Banking and Capital Markets. He has lead business growth across global client portfolios spanning North America, Asia, Middle East and Europe. For Virtusa, Deepak is responsible for the business strategy, client management and sales for the BFS MEA segment with a special focus on innovation. Prior to joining Virtusa, he has held leadership positions with Sapient Global Markets, Genpact Headstrong and Wipro. Deepak holds a degree in Computer Engineering from Pune University.

More Posts