Digital Payments - Distribution

Most Fintech companies are riding on the digital payments wave created by the Indian government's initiative to boost the digitalisation of financial services. According to the World Bank, Indian companies have witnessed betwen 200 to 400% increase in digital transactions. In the following article, we will evaluate the evolution of digital payments and attempt to understand if this move is leading towards a cashless society or not.

1. Mobile Wallet : An innovative way to carry out debit or credit card information on a mobile device to make purchases with your smartphone, tablet or smartwatch. You first need to download the mobile app, add the card information to the mobile wallet. When you check out at participating merchants, access the mobile wallet and choose your card. If you’re making an in-store purchase, just hold your mobile device at the terminal. Is it a great success? Allow me to put an important point here (a) Who are the users of this wallet ? The answer is simple, people who already have a bank account. They transfer money using their bank account, credit card, debit card to use Wallets transferring money from one digital mode to another. (b) Why do most people use mobile wallets ? Based on a recent survey conducted in cities by the Indian government, 90% people use mobile wallets for cash backs and other use it for regular small payments like Uber bills. 

Now the big question is, are wallets really leading to "digitalization of cash" and "banking services - financial inclusion" ? 

2. AEPS : The new buzz word is AEPS. In a retail bank branch, 95% of transactions are either (a) cash deposit (b) cash withdrawal (c) balance enquiry or passbook updation. Experts claiming that AEPS cash withdrawal and deposit is digital payments can help me understand, how this process is eliminating the cash? AEPS through BC/ CSP network is a proxy to branch banking and is not about digital payments. Yes, AEPS - Aadhaar Pay can be viewed as digital payment (buying goods or services using AEPS-Aadhaar Pay).

3. Let's talk about much hyped BHIM/ UPI : Riding on backbone of IMPS platform, UPI and BHIM needs to reach second level of consumer to business payments. Small payments are still a far distant. UPI may be a game changer when merchant payments is implemented. 

Distribution

Let's see the distribution of digital transactions, JAM - 1 billion, how many unique consumers ? where they live? It is the same customer who use Wallet also use card, then move to Aadhaar Pay followed by UPI and other digital payments? 

Are these innovations being adopted by the rural population ? The current answer is "no". The industry needs to either innovate for the masses and not for classes or bear the cost of reaching un-banked, under-privilege populations in villages.

My latest research shows two important aspects of digital payments, one is concern for security (due to ponzi schemes in poor states where people lost hard earned money) and second of all is the ease to use it. How can the financial services industry expects an illiterate person to use a smartphone to make digital payments? As per the Indian government's data, 26% of the country's population is still illiterate. Bihar being the lowest have 37% illiterates.