In an encouraging observation on Modi administration’s financial inclusion
strategy, Microsoft founder Bill Gates
has termed it ambitious and exciting.
Speaking to reporters over the telephone Gates said, “India’s a place where some very new things are being done, like the so-called payment banks regulations, where prime minister Modi has got very ambitious goals for financial inclusion.
And the fact that that’ll be done through the cell phone means the ability to draw in millions of people including those who are below average in terms of their income. We’re very excited about that as an enabling tool. It can help in various health, savings, education and agriculture scenarios.”
However, Gates observations were also peppered with words of caution. He said, “There’s a willingness to do things like the payment banks, but there’s also a lot of need. You know, if you look at the percentage of kids who don’t get fully vaccinated in the world, you know, almost over a quarter of those are in India. And so in areas like malnutrition, you know, we need to make progress.”
By the look of it, Gates seems to have hit the bull’s eye. Post demonetisation, there has been a significant spike in money flows through mobile platforms. The growth in three mobile-based platforms – Unstructured Supplementary Service Data (USSD), Immediate Payment Service (IMPS) and Unified Payment Interface (UPI) – shows that Indians have taken to these platforms like fish to water post demonetisation.
Reserve Bank of India (RBI) figures show that these three payment platforms alone have grown 40 times in terms of the value since November last year when 86 per cent of the Indian currency
was taken out of circulation. This growth has primarily been led by UPI and USSD.
In August 2017, the amount of money transacted by Indians through UPI touched $64 million. In November 2016, UPI transactions stood at $1.4 million. In August 2017, the amount of money transferred through USSD by Indians stood at $4.6 million. In November 2016, money transacted through USSD amounted to just about a hundred thousand dollars.
A part of the success of USSD & UPI and this growth in the amount of money being transacted through the platform can partly be attributed to Modi’s aggressive pitch while launching the BHIM
application in December last year. Modi had said, “Earlier using one’s thumb was a sign of illiteracy. Now it will be a sign of empowerment. This is going to empower the poorest of the poor, small traders, farmers in far flung areas and the forest dwelling tribal.”
The USSD & UPI facility in which people can transact even with basic feature phones without any internet connection was the highlight of Modi’s launch on a day which also marked the death anniversary of Dalit icon BR Ambedkar. People could dial *99# and follow the instructions to make the payment to anyone in any bank that was on the USSD platform. The launch of the application was targeted at the economically and technologically underprivileged population. Those using the *99# facility from their phones could not transfer more than $78 every day. The annual transaction limit was fixed at $783.
But what may have got Gates excited is the fact that despite growth in mobile phone based transactions, they are still a drop in the ocean. In August 2017, Indians transacted $1.7 trillion electronically. Quite evidently, the untapped potential of mobile based banking and payments banks is immense. The government also seems intent on getting more Indians into the payments bank
A NITI Aayog
report earlier in January 2017 stated the government’s digital payments
policy quite lucidly and asked the ministry of finance and RBI to act on it. The report noted, “During October, 2016 the total number of digital payments
was 900 million, which translates to just one transaction per adult per month for approximately 900 million adults. The Committee suggests a target of 30 billion digital payments
a month by December 2017, i.e. one digital payment transaction per adult person per day.”
The report also put the onus on the department of telecommunication to remove technology barriers to ensure accelerated adoption of USSD. The report noted, “Usage barriers for USSD should be eliminated for greater adoption – prioritisation of USSD signals for containing high volume of session drops, capping of consumer charges at Rs 5 per month for unlimited number of transactions, non-response time out to be increased from 10 seconds to 30 seconds, session time to be increased to 5 minutes. USSD shall also be made functional just by entering the Aadhaar number which will help semi-urban and rural citizens to adopt USSD with ease.” The ministry of finance was also asked to ensure that all banks be brought on the USSD platform. Banks were asked to seed all mobile numbers to respective bank accounts since the UPI platform could be only used with this linkage. Other suggestions include developing a common UPI Quick Response (QR) code to be deployed at all merchant locations.
Although USSD & UPI have witnessed the highest growth among these three mobile platforms, IMPS accounts for the bulk of transactions among all three in value terms. IMPS transactions have doubled between November 2016 and August 2017. IMPS is not entirely mobile based and is also offered by some banks through their internet banking facilities. In August the value of transactions through IMPS stood at almost $10 billion – again a fraction of the trillion dollar plus electronic payment ecosystem in India.
While these are encouraging figures, challenges still remain on how to wean Indians away from hoarding cash and into the payments bank
ecosystem. RBI documents suggest that while the value of bank notes in circulation declined by a quarter in 2016-17, the number of bank notes increased by 11 per cent - an indication that lower value denominations were being injected into the economy.
Meanwhile, the newly introduced highest denomination bank note of Rs 2,000 accounts for barely 3 per cent of the total currency but more than half the value of the currency in circulation. While cash seems to be getting back in favour, the government wants to stem India’s slide back to a cash dominant economy by inducing behavioral changes. Two measures suggested by NITI Aayog
include – giving cash backs on small spends through e-wallets and tax refunds to those who transact digitally up to a certain proportion of their income.
Gates may well be excited and optimistic about Modi’s initiatives to usher in a digital economy in India but how long this excitement lasts could well be decided by how successful the Modi government will be in weaning Indians off their addiction to cash.