The government has been pushing for digital payments ever since the demonetisation. However, cost of digital payments remain a major stumbling block for many people to embrace digital methods of transaction. Amitabh Kant, CEO, NITI Aayog, who also heads a committee set up the government to push digital payments, tell Dipak Mondal the steps the government has taken to bring down the cost of digital payments.
How has cost of digital payments fallen over the years, say, in the past five years?
We are moving from a low volume, high transaction cost to high volume, low transaction cost digital economy. Cost of digital payments have fallen significantly over the years, both due to pro-active initiatives of Government and increased volume of transactions. RBI has progressively reduced the caps on MDR charges on debit cards since 2012. It was brought to 0.75 per cent for transactions upto Rs. 2000 and 1 per cent for above Rs 2000. Further, in December 2016, cap on debit card MDR charges was further reduced to 0.25 per cent for transactions upto Rs. 1000, 0.5 per cent for Rs. 1000-2000 transactions. In February 2017, a draft MDR policy with revised charges and new categories has been proposed and public comments have been sought. I am sure RBI will initiate measures to provide a massive impetus to digital payments movement.
Enlist some of the steps that the government has taken in the past couple of years to bring down the cost of digital payments/ transactions?
Apart from rationalising caps on MDR on debit card transactions, Government has launched and incentivised new modes of digital payments. Aadhaar Enabled Payment System (AEPS) is operated by banking correspondents where they are given incentives for transactions. Cost of micro ATMs, biometric devices and PoS devices have reduced quite significantly due to customs and excise duty waivers announced in the budget. Government also ran a DigiDhan campaign where 16 lakh lucky winners (users and merchants) were rewarded with prizes ranging from Rs 1000 to 1 crore. Further to incentivise behaviour change and bring down the cost of digital payments, referral and cashback schemes have also been launched for BHIM where users and merchants receive cashback. Referral Scheme awards Rs 10 cashback to referrer and Rs 25 to new user on each successful referral on BHIM.
Cashback Scheme is for merchants and awards Rs 100 for 50-100 inward transactions received by the merchant on BHIM every month if he/she receives it from at least 20 different customers. On top of 100 inward transactions, the merchant is given 50 paise per additional transaction with a cap of Rs 200. So, a merchant on BHIM can earn Rs 100-300 every month through the Cashback Scheme. On April 14th this year, the Prime Minister also launched BHIM Aadhaar, the merchant interface of the BHIM App, to ensure that citizens are able to transact digitally with just their aadhaar number, even without internet, smartphone or a mobile. This radically reduces the cost of buying expensive PoS devices by the merchant and, instead, transforms his mobile phone into a PoS device. This is a major disruptive move making digital transactions easy and simple. Every smartphone owner has the possibility of becoming a walking ATM.
The govt has recently launched the BHIM App, which allows chargeless transactions. What is the cost that the government is incurring by 'subsidising' digital transaction?
Government has led the way in rationalisation of cost of digital payments. Earlier regime of digital payments was based on low volume and asset heavy infrastructure. Now since the underlying fundamentals of the sector have changed where volumes have gone up exponentially and zero-cost acceptance infrastructure (QR code) has developed, the cost regime has to change. Government has tried to instill a "work done" principle while coming up with costs of a digital transaction. As the cost of settling a transaction on UPI/BHIM is very nominal, NPCI has waived off switch charges. However, the individual's bank may or may not have IMPS charges.
You have said on many occasions that cost of digital transaction would one day be less than that of cash transaction. What is the government's roadmap to achieve this target?
Cost of a cash transaction is not apparent to us. Nonetheless, it is costly. RBI and other commercial banks spend Rs 21000 crore every year on currency management operations. On top of it, there are costs associated with fake currency and replacement of soiled and torn notes. Visa's report estimates the overall cost of cash upto 1.7% of GDP. As the digital transactions rise in volumes, its costs, mainly in terms of MDR, will come down and will eventually become cheaper than cost of printing, storing, transporting, verifying, distributing and replacing currency.
What are the major challenges in bringing down the cost of digital payments further and what could government do to cross these hurdles?
The major objective is to increase the adoption and use of digital payments in India so that cash usage drops to 5-6 per cent of GDP. Government has taken multi-pronged steps to increase digital payments - DigiDhan campaign for awareness and behaviour change, incentive schemes, cost rationalisation, wider choices of modes of digital payments and infrastructure creation through Bharat Net. Government has also understood the role of fast changing technology in financial services space and hence has allowed the sector to grow without reactive intervention. New Payment and Small Banks have adopted ICT for increased access. More than 900 new fintech startups have developed various innovative technologies such as voice and SMS based transactions which do not need internet. All these new developments with pro-active government support will bring down the cost of digital payments substantially.
Usage of big data, new financial technologies such as blockchain and distributed currency will transform the way banking services are delivered. Transformation has been visible through my experiences since the time when fishermen in Kerala used to run around banks for opening an account to now when they can open an account either online or by just using their Aadhaar and thumbprint. Such a revolutionary fast paced change led by private sector and pro-actively supported by the government presents a huge opportunity for India - to make a quantum jump forward towards a digital economy.