Nilekani panel wants cheaper digital payment to improve financial inclusion

The high-level committee on deepening of digital payments, led by Infosys co-founder Nandan Nilekani, has recommended a reduction in costs to widen the acceptance infrastructure and improve digital financial inclusion. 

A major suggestion to increase both digital acceptance and tax compliance is that businesses be provided with tax incentives calibrated on the proportion of digital payments in their receipts. 

Another is that the Reserve Bank of India (RBI) consider setting up an acceptance development fund, which is used to develop new merchants in poorly served areas. 

It calls for a 15 basis point cut in the interchange fee on card payments and that issuing banks deposit 5 basis point in the acceptance development fund. This amount is to be matched by the RBI with the goal of improving acceptance infrastructure. 

The committee is of the view that the RBI and the Centre put in place a mechanism to monitor digital payment systems and make aggregated information based on blocks and PIN codes, available to all players on a monthly basis. It is also for the creation of a digital financial inclusion index so that progress in an area can be measured along a common scale, indicating the evolution of the users and steps taken for correcting the imbalance. 

The report noted that while the digital payments ecosystem has made substantial progress on the issuance side, there needs to be an improvement on the demand or acceptance side of the ecosystem. 

High-cost structures, including interchange fees, as well as limited financial service offerings, impede merchants from accepting digital payments. “Cash — with its ease of usage, universal availability and acceptance, low cost to consumer, and no requirement of KYC — continues to play a significant role in payments,” it said. 

The committee, set up in January, met seven times with the first meeting being held on February 8 and considered inputs from several stakeholders. 

The committee recommended that the government, being the single-largest participant in payments, take the lead on all aspects of digitisation of payments. Digital payments have steadily become a significant mode for the inflow to the consumer due to benefit payments and salaries in the organised sector. However, cash is still the dominant mode for the outflow for the consumer because of the underdeveloped nature of the acceptance ecosystem for digital payments, said the report. 

The committee said that this gap between “digital credits” and “digital debits” needs to be addressed. It also said the government should ensure that no convenience fee is charged on customers for government payments. 

It set a target for additional growth of volume of digital payments by 10 times in three years in line with 10-fold growth over the last five years. This growth will be driven by a shift from high-value, low-volume, high-cost transactions to low-value, high-volume, low-cost transactions. 

The RBI’s Payments Vision 2021 report said that the number of digital transactions is expected to increase more than four times to 87.07 billion in December 2021 from 20.69 billion in December 2018. The digital payment transaction turnover vis-à-vis gross domestic product (at current market prices) is expected to further increase to 10.37 per cent in 2019, 12.29 per cent in 2020, and 14.80 per cent in 2021. 

On the agenda

| Calls for 15 basis point cut in card interchange fee

| Digital financial inclusion index to be created

| Correct cost structures that currently inhibit acquirers and merchants

| Reduce the overall cost to the consumer and service charges for digital payments

| Creation of digital financial inclusion index