Demonetisation impact: Modi govt's BHIM has hit the bulls' eye

But it will face its first big challenge from Google in the days to come, and will take a while before it can wean Indians off their love for cash

The government’s BHIM (Bharat Interface for Money) application announced by Prime Minister Narendra Modi on December 31, 2016, has seen remarkable growth over the past few months. Named after Dalit icon Bhimrao Ambedkar, the digital payment application was also launched for non-smartphone users on his birth anniversary in April this year. During the first nine months of operation, BHIM has reported transactions worth more than Rs 11,000 crore and now accounts for almost half of all United Payment Interface (UPI) transactions in the country.
 
National Payments Corporation of India figures show that in September this year, more than Rs 2,400 crore worth of transactions were done on the BHIM platform. On an average, every transaction on BHIM was worth almost Rs 3,000. These figures vindicate the Modi’s government’s resolve to transform India into a less-cash economy by introducing multiple digital platforms, with BHIM being one of them. With a transaction limit of Rs 20,000 a day, the application was largely targeted at small and medium merchant establishments.
 
BHIM seems to have outdone most other non-cash based financial instruments that have gained traction among India’s newly banked population since demonetisation. For instance, RuPay debit cards, which have been in use since 2012, clocked transactions amounting to Rs 18,300 crore in the first half of 2017-18 at point-of-sale machines. In contrast, BHIM has recorded transactions worth Rs 7,300 crore during the same period. That’s impressive for a new mobile-based payments system that isn't even a year old.
 

The huge traction gained by BHIM during the few months since its launch can be explained by various factors. Modi’s personal push by devoting almost an hour on a widely-broadcasted public forum on December 30, 2016 seems to have worked wonders. The Prime Minister's personal touch seems to have had the same effect on BHIM that his unintentional endorsement had in pushing Paytm into popular conscience. That Modi’s magic worked wonders in pushing the adoption of BHIM can be gauged from the fact that on December 31, 2016, a day after he announced the application for smartphone users, almost 43,000 transactions worth Rs 1.8 crore were recorded on the platform. In January 2017, a month after the launch, as many as 1.7 million transactions worth more than Rs 350 crore were recorded on the platform.
 
While Modi’s hardsell did give initial momentum to BHIM, its speedy adoption by Indians can also be explained by NITI Aayog’s incentive-driven and deadline-oriented strategy. The interim report of the committee of chief ministers released by NITI Aayog this January mentioned cash-back rewards to customers who transact digitally and tax incentives for merchants who adopted these platforms. But the National Payments Corporation of India seems to have wooed even merchants with cash backs.
 
In a circular dated August 18, the National Payments Corporation of India asked all 55 banks on the BHIM platform to introduce two schemes for customers and merchants. Merchants were given a maximum cash back of Rs 1,000 a month if more than 50 unique customers transacted at their establishments using BHIM. To ensure that smaller merchants benefitted from this scheme, banks were asked to reject rewards to large merchants at the time of disbursements. Merchants who could muster a minimum of 20 unique transactions on BHIM were promised smaller sums as rewards. Customers who referred other people to use the BHIM application had Rs 25 credited into their bank accounts. A similar sum was also promised to the person who started using BHIM after a successful referral.
 
As a force multiplier to BHIM’s brand placement, National Payments Corporation of India also asked all 55 banks offering UPI services to pre-fix BHIM with their respective applications. Banks could avail these cash incentives only if the BHIM symbol was prefixed to their applications’ name.
 
NITI Aayog had also recommended that National Payments Corporation of India stick to deadlines in expanding and popularising the BHIM ecosystem. By February, the BHIM platform was to be linked to the Aadhaar ecosystem in order to enable even those without smartphones to transact. This eventually set the stage for the formal BHIM-Aadhaar payment system launched by the Prime Minister on April 14. The maximum limit for every transaction on the BHIM-Aadhaar platform was fixed at Rs 2,000 and banks were given the option of integrating BHIM and Aadhaar symbols on their applications.
 
Challenges ahead
 
While BHIM has an early mover advantage, it could face stiff competition from newer entrants. A major challenge to BHIM’s prospects would be Google’s entry into the UPI payments market with its application named Tez (Fast in Hindi). Tez was launched by Google last month and works on both Android and Apple devices. There are other smaller players in the market, but given Google’s technological prowess and dominance of the smartphone software ecosystem, BHIM’s toughest competition could well be from the Silicon Valley giant. By the look of it, Google’s payments application has 5 million downloads since its launch. How many of these downloads are actually translating into transactions remains unclear. Although its early days for Google in India’s financial technology sector, it has been operating a similar business called Google Wallet for American and British customers.
 
The Modi government could take heart from the phenomenal growth of mobile payment platforms in China, where state intervention hasn’t yet allowed Google to dent the dominance of home-bred companies such as WeiXin and WeChat, which control over 90 per cent of the mobile payments market. According to a report published by Paris-based research firm Ipsos this year, the mobile payments market in China has been growing at an annual rate of 195 per cent.
 
The report notes, “From 2013 to 2016, the number of transactions made through non-banking mobile apps increased from 3.7 billion to more than 97 billion. WeChat Pay has become the main cashless payment method for daily small transactions in China. In the first quarter of 2017, WeiXin and WeChat have a combined monthly active user base of 938 million users, with a year-on-year increase of 23 per cent. WeChat Pay is becoming a part of Chinese people’s everyday life.”
 
If the Chinese are anything to go by, BHIM has some way to go in weaning Indians off their love for cash.