Two days ago, finance minister Arun Jaitley discussed the need to “expand digital banking” , saying that “one of the principle objects with regard to reform currency is that physical currency must shrink but the economy has to expand and the trade has to expand. And therefore what shrinks has to be substituted and further expanded by the digital mode”.
So how are the institutions gearing up for this rapid change which is required of them?
A.P. Hota, managing director and chief executive officer of National Payments Corporation of India (NPCI) – which was set up by Indian banks under the aegis of the Indian Banks’ Association and the guidance of the RBI to provide centralised infrastructure for various retail payment systems in the country, including card payments – spoke to The Wire about how the digital banking system’s dynamics have changed since Prime Minister Narendra Modi announced the demonetisation of Rs 500 and Rs 1000 notes on November 8.
Hota said that while it is true that the volume of people who use digital banking services has shot up sharply post demonetisation, the banking system had already prepared for the surge and is currently taking more steps – such as technological upgrades – to meet the challenge of this massive shift towards digitisation.
You played a key role in implementing Real Time Gross Settlement (RTGS) in India, ushered in the Immediate Payment Service (IMPS) when you were with the RBI and also worked on India’s own card scheme, RuPay, after joining NPCI. But clearly, demonetisation is much more of a challenge, considering how short the timeline is. How have you prepared for it?
Post demonetisation, what has been seen is that cards and mobile phones have emerged as the most widely available money transfer systems or payment mechanisms. As far as cards are concerned, we have seen a surge in the use of cards on the point of sales (POS) devices as also in e-commerce. The number of POS machines in the market is around 14 lakh, but while previously about six to seven lakhs of these were used on a daily basis, now this number has shot up. This means [that even] in the Tier 3 and Tier 4 centres also, where POS machines were not being used earlier, now they are being used more frequently.
We understand from the market that now there is a greater demand for the mobile POS. There are now a few companies, like MSwipe, who have just devised mobile kind of devices where you can swipe a card. There has also been an increase in the installation of new POS machines.
In the mobile payments segment, we have seen the number of transactions go up in IMPS (immediate payment service), in UPI (unified payment interface) as well as in *99# – which is a USSD (Unstructured Supplementary Service Data) based mobile banking service from NPCI that brings together diverse ecosystem partners such as banks & TSPs (Telecom Service Providers).
Using [the] *99# service, a customer can access financial services by dialling *99# from his/her mobile registered with the bank. The service works across all GSM service providers and handsets.
How much has the volume of transactions changed in the past fortnight?
In UPI the good thing is that both the State Bank of India and HDFC bank have joined just this past week [on Monday] and we have seen the number of downloads increasing significantly, from about two million to about 3.5 million.
And in the old traditional transfer system of IMPS, the numbers have grown from about 1.2 million to two million a day.
In *99# , which is, in fact, a simple future phone based i-mobile payment system, also we have seen a surge of around 100%. So you can say in the POS transactions the usage has increased three times, in e-commerce two times and in mobile payments two times.
But for a country of our size, probably it is still not large enough. Probably this increase needs to be ten to 15 times. So efforts are on and banks are working overtime to see how activation can be done.
How do you intend to ramp up the reach of these systems?
A lot of public awareness campaigns are being done by all the players, including banks.
At NCPI too we have done one RuPay campaign and IMPS and UPI advertisements and on Saturday afternoon radio jingles will also start for RuPay and mobile payments.
Educating the end-users is very important. Very soon a number of video campaigns will also start on various television channels to educate the merchants on how they can activate various electronic channels, particularly UPI and *99#.
Just the way ATMs have been linked for easy withdrawal of money, are there any plans to interlink all the digital payment gateways? Presently, traders and businesses are confused about which operator, bank, wallet or service provider they should choose.
One interoperability the RBI has already permitted – from bank account to wallet account and vice-versa. If a trader has a bank account and it is connected to a wallet account from any issuer, be it Paytm, Mobikwik, Oxigen or any kind of wallet, they can easily send the money to the bank account from any of these wallet accounts. So that interoperability is already there.
Interoperability between the wallets is not there as yet. It is a regulatory issue and I understand they are examining it.
Only a regulatory permission is required now since the technology is already in place to interlink all the wallets. It is just a matter of minutes to switch on this new technology. So technically there is no challenge.
What are the limitations of technology as we gear up for a surge in volumes?
There is no problem in handling volumes. Almost all the banks have a lot of spare capacity. We have sufficient capacity to process 40 million online transactions per day right now whereas the current maximum is only around 20 million transactions per day. These are all online transactions and this covers wallets, mobile, everything.
We expect a future capacity of about 100 million and we are gearing up for that also, by further expanding the capacity. It will take time to reach those levels, though [a growth in volume of] two or three times in the next few months is pretty much expected.
Considering the general education and awareness levels in rural areas, the absence of smartphones and the limited resources in the hands of the masses, how will they be able to shift to this new technology?
The strategies for rural areas are two-fold. One is [based on] USSD-based mobile payment which *99# has and this service is available on all the mobile phones, including non-smart phones. It is also [included] in the features of all the cell phones. As per the menu, you can access quite a few basic services. That is being revamped in light of the feedback which has come from the consumers. The new upgraded service will be rolled out in about ten days.
What about the security of money during digital transactions? The poor, especially in the villages, really cannot afford to lose anything.
As far as digital payment modes are concerned there is nothing to worry about. So far as UPI and IMPS functions are concerned, they are as safe as internet banking. They have multiple layers of security for authentication through passwords and PINs. As far as USSD is concerned, though it is comparably less secure, it comes with an amount limit of Rs 5,000 in view of this shortcoming.
What about threats from embedded malware as a lot of hardware is imported?
Information security is being closely monitored and I do not think there is any reason for concern.
Right now banks are busy replacing currency. Once they have the staff to spare for other operations, do you think the digitisation process will gain speed?
I think the pace at which banks are installing POS devices is really good. Once the electronic acceptance is increased and the customers find it convenient, they would stop coming back for cash. And that is our ultimate aim.