Barriers impede innovation in India’s payments system

Almost 95 per cent of India’s economy is cash-driven. This offers huge opportunity for growth in electronic payments and settlements system. However, some barriers stifle innovation and growth in the sector, says Ari Sarker

01 April, 2015 Uncategorized
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The government should encourage technology companies to provide innovative services using the Aadhaar database. In a market of over 1.2 billion people and 95 per cent of the transactions happening in cash, every player should be rolling their sleeves to bring in new services. What they need is level playing field and an open environment. – Ari Sarker, Division President-South Asia, MasterCard Worldwide & Governing Council Member, CAII

The Indian economy is predominantly cash-driven with only 5 per cent of the country’s Personal Consumption Expenditure done electronically. This shows that there is a huge unexplored market for payment companies. It will require all players across the payments value chain to create much greater innovation in payment services. In other words, greater competition and collaboration will be beneficial for all segments like consumer, financial institutions, merchants as well as the government by creating innovative solutions that meet the needs of different segments of the society.

However, the current scenario does not provide conducive environment for innovation, given that over 90 per cent of the markets electronic flows (this includes ATM volumes, POS volumes and E-commerce) are controlled by one network National Payments Corporation of India (NPCI). If we create an open environment and allow technology and service companies to participate, it would make much greater payment service proliferation possible in the country with greater innovation.

The US is a classic example of how innovation and technology breakthroughs happen in an open competitive environment and how different business models emerge in a short period of time. By providing open environment and open system, you create a vibrant entrepreneurship class, to drive innovation. Once we create an open system for all technologies to compete, we will be able to create a much more vibrant economy.


Aadhaar database is unique in the world. Today we have 700-800 million people covered under Aadhaar. Soon this number is expected to rise to 1 billion. It’s a significant achievement for the country and we all take great pride in this achievement. Now the bigger challenge before the country is how to use this database to create new services that will allow greater service proliferation and enhance consumer lives, drives greater efficiency for businesses and governments and creates more revenue earning opportunities for micro merchants and small entrepreneurs. The government should encourage technology companies to provide innovative services using the Aadhaar database.

In a market of over 1.2 billion people and 95 per cent of the transactions happening in cash, every player should be rolling their sleeves to bring in new services. What they need is level playing field and an open environment.

Using the Aadhaar system, a technology capability has been launched exclusively by NPCI called the Aadhaar Payment Bridge. It takes the Aadhaar number and maps it with other personal identification numbers. In the past two years, the mapper has mapped Aadhaar numbers to bank accounts only. In an open innovative environment the Aadhaar specifications for the Aadhaar Payment Bridge should have been opened up to many players who would innovate to create more robust mappers to other forms of personal identifications, which could lead to many more uses and service proliferation. Such an approach would create stronger momentum to convert the 95 per cent cash economy into electronic form. This can be done with mobilebased services leveraging Aadhaar. We can have over-the-air provision services with no requirement for physical cards and pin mailers etc. An example of innovation is MasterCard’s partnership with Facebook to launch money transfer capability among the Facebook members. Today, 130 million people are on Facebook from India and this innovation will be available in India soon to Facebook’s users.

Cyber Security

In an increasingly interconnected world of devices with more and more personal information being stored and shared across various platforms, there has never been a more poignant time to address this challenge in a meaningful way. The notion of “Internet of things” will mean any and every connected device to the Internet will be a device enabled for commerce. This is a very significant opportunity and a challenge, given the rising prominence of India and our efforts to drive electronic payments will attract the interests of organised crime which today moves with extreme sophistication and speed with a network of agents to defraud millions of dollars within minutes. This calls for a world-class safety and security systems built with global standards of EMV, Tokenisation coupled with fraud solutions and artificial intelligence.

This will also require domestic networks to have such world-class fraud and safety capabilities to combat such challenges. It will take prominence as the domestic network becomes larger and gets on the radars of the international crime syndicates. From a country’s perspective it is critical not to create significant “single point of failure” which in the event of compromise could have catastrophic consequences for a country’s ability to keep the commerce engine running. Therefore, a healthy competitive market environment needs to be created giving space to a number of players.


MasterCard has been a leader in the financial inclusion space across the world with programmes in more than 50 countries. To name a few, MasterCard is leading the financial inclusion programme in South Africa; the National ID programme-cumpayment card in Nigeria and Egypt. We are also providing a national fraud and safety services in Egypt. Our mobile payments capabilities can really supercharge the market with much greater innovation, where a mobile-to-mobile ecosystem for payments can contribute to solve a serious gap in payments acceptance infrastructure by leveraging the 900 million mobile phones in India and delivering seamless interoperable payment services. The government’s announcement of the JAM trilogy which is Jan Dhan + Aadhaar + Mobile is the right approach to solve financial inclusion challenges.

The company takes the cyber security threat as a real challenge, which needs continuous investment and innovation in developing next generation fraud and safety technologies. Our products like SafetyNet prevents catastrophic events from happening. In addition our artificial intelligence-based solutions like EMS—Expert Monitoring Solutions—will enable user organisation get even more granular in determining parameters to curb frauds.

In closing, India is very much a cash economy and needs more participants to drive services to help achieve the Reserve Bank of India and the governments’ objective of creating a “less Cash Society”. Today, India has 11.9 per cent of GDP in cash. Developed countries have 4 to 5 per cent cash economy. The Country spends Rs 4,000 to Rs 4,500 crore in printing currency. Considering just currency, the ratio of currency to GDP in India (12.2 per cent) is higher than countries such as Russia (11.9 per cent), Brazil (4.1 per cent) and Mexico (5.7 per cent). Various studies show that 0.5 to 1.5 per cent of GDP is the cost of cash economy. Therefore, by driving behaviour for electronic payments in all its forms, we would also be driving the GDP growth.

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