Several banks and financial institutions had already in one way or another initiated a lot of go-cashless initiative and introduction of Universal Payment Interface (UPI) has been one such national move. It may appear to be nagging to a few but largely there has been a widespread acceptance to the government’s move in the larger national interest.

IDFC Bank also had created an alternative channel much ahead of long ago—micro-ATM—trying to conceptualise the complete bank-in-a-box solution, which has helped the hinterland to access funds during this demonetisation phase. “Using Aadhaar Enabled Payment System (AEPS), we have been able to service customers from across banks,” said, Raghavan Venkatesan, Head – Digital Payment & Alternate Channel, IDFC Bank.

It is not the case that before demonitisation started there were no electronic transactions. Instruments like NEFT, RTGS, IMPS, digital wallets etc have all co-existed for a long time, but the culture of cashless did not really set in. Now retailers are forced to accept online payments and customers with shortage of cash are left with no alternative but to pay electronically. “Although we grew by over 20 per cent but unfortunately, there has been a dip recently, primarily because the number of transactions have increased but the success rate has slid. Perhaps, the banking system was not ready for such an unprecedented scale,” said Vishwas Patel, Founder & CEO, Avenues India. “But, things are settling down fast,” he added.

Agreeing, Paresh Rajde, Founder and Chairman of Suvidhaa Infoserve said, “Our business was definitely impacted as our customers have been the daily wagers who use remittance services frequently. There has been a big dip because of non-availability of cash. Moreover, many have also been out of job and have nothing to remit.” Suvidhaa’s customers are small time vendors, carpenters, hawkers, vegetable vendors, rickshaw pullars; large migrant people at the bottom of the pyramid who have a constant need to send money home. However, the story on the digital payments is quite encouraging. “We are the only company in India, which is providing this kind of solution using Aadhaar e-KYC, which we launched last year with MasterCard. This is the only product available and that has got really a big boom because now every factory and every labour oriented industry wants to disburse its money electronically and acquiring or onboarding of customers has become extremely fast. If you want to onboard 10,000 workers, for example in a factory, this is the only way you can open the bank account instantly. This is how we have done it. We have received a good response and we are actually running out of the bandwidth,” added Rajde.

Overall, the businesses that are able to adapt quickly to this change will have better chances to survive and sustain. In an economy, which was more than 85 per cent cash and getting demonetised, there certainly is a latent business opportunity waiting to be exploited. The challenge currently is not on the issuer side as India already has more than 750 million cards available that run on PoS, ATMs and other devices. The acceptance infrastructure really is the challenge the upgradation of which is a capital-intensive exercise. “How fast are able to put that infrastructure in place is a big challenge. Understanding of the system given the geographical spread of the country and poor literacy levels is another challenge,” mentions Vijay Jasuja, CEO, SBI-Card.

India has 58 million plus brick and mortar merchants but acceptance is at only 1.4 million locations that too in top 10-15 cities. Globally, there are about 40 million acceptance locations. So the challenge lies in creating acceptance of the scale, which has never been done before. Combine that with the last-mile connectivity issue and making sure that connectivity is there at time of transaction, doing e-KYC will become more and more challenging. Therefore, it is imperative to create a right structure around issuers, acquirers, networks, government and the public-private-partnership (PPP) will be critical success factor for laying down the foundation for a quick move over to a new cashless economy.

The Government of India (GoI) is contemplating to use the AEPS railroad for cashless transactions. In Andhra Pradesh there are about 28,000 PDS outlets, which actually have a micro-ATM and Government of Andhra Pradesh has put a cashless App on that to make all commodity purchases online. So, that kind of innovation at an all-India level has to come in, where a customer goes to a retailer point and if required a biometric dongle can be added to make it a secure acceptance point.

“I believe, there is going to be an acceleration not just in the private sector innovation through fintech and banks, but also in policy / regulator initiatives. The process has already started,” said Amit Shah, Senior President & Country Head (Mktg & Corp Comm), YES BANK. It recently launched SimSePe that allows feature phone users across India (largely financially excluded or unbanked regions) to use their phones for transactions. “We have tied up with a Taiwanese company that holds a global trademark for this slim sticker, which when stuck to the Sim Card and put back into the slot converts a feature phone into a transacting device. To my mind, this is far more evolved than USSD because a consumer does not have to follow so many steps and moreover, he does not have to pay extra charges for SMS. This is an encrypted service, hence fully secured. This has already been launched with five co-operative banks as it follows B2B2C strategy,” added Shah.

“I would say that one of the things which people don’t realise is that today there are only 5 banks which will be acquiring. Therefore the pressure on the acquirers is immense. When you look at payment facilitators who really have driven the acceptance—just to give you a perspective, for the last 5 years before 2016 acceptance had not grown in this country, it was growing at 13-14 per cent, which is the lowest ever. For the first time it has grown by over 30 per cent and this is pre-demonetisation. So, we are going to see better times moving forward,” opined Porush Singh, Division President – South Asia, Country Corporate Officer – India, MasterCard. Undoubtedly, driving interoperability and competition will give more innovation, more choice, that will develop new forms, which will leapfrog.

Even though, the cashless growth is more than 100 per cent, India will be only 6-8 per cent cashless. And this will still be a small number. Singh cautions, “If tomorrow there is a zero MDR, I can guarantee it is not going to grow too much. Let us not go away from the reality. There has to be money in the value chain, however small, for it to become profitable.” Jasuja agreed and said, “It is only for the temporary period that government has said that MDR on debit card has been withdrawn. But it is not going to be a permanent feature. If at all it is going to be, then the government has to subsidise the players. Players cannot take this on their own, otherwise the industry will not be able to grow.”

According to Devender Singh, Principal Secretary – IT, Government of Haryana, “I agree that this is a disruptive innovation—either you believe in incrementalism or gradualism or shock treatment. AEPS is a game changer as Aadhaar penetration has reached a very high level, for example, it is close to 99 per cent in Haryana. Bankers will have to work harder and at the State Level Bankers Committee (SLBC), I had said, why not convert all the Village Level Entrepreneurs (VLEs) of Common Services Centres (CSCs) into a BC and give them a micro-ATM? So far out of 200,000 odd CSCs only about 33,000 have been converted into a BC.” Ashok Kumar Yogi, a CSC operator from Alwar, Rajasthan agreed with Singh and said he has tied up with Bank of Baroda and everyone in the village between 18-70 years of age has a bank account and been insured under Atal Bima Yojana (ABY). The village is now demanding a PoS machine for transactions for which they have to travel 20 kilometers.

Jehangir Wani and Saurav Tripathi, CSC operators from Pulwama, J&K and District Shahjahanpur, UP, respectively have faced problems of connectivity. Wani mostly used mobiles for connectivity till the time these were banned. He is now using NIC’s district network for connectivity. He says, “We collect data for the entire day and in the evening, we visit district NIC centre to upload that data.”