With the thrust on application of information, communication and technology (ICT) in commercial space and internet of things (IoT) transcending the lifestyle of every section of the community, the size of the digital economy is well poised to reach $1 trillion by 2025.
Policy initiatives have been well calibrated to accelerate digitisation under the ‘Digital India’ campaign. The baseline digital infrastructure is of over a billion mobile phones and around 450 million internet connections. In terms of average internet speed, India is ranked 89th globally with an average speed of 6.5 mbps. Such penetration of connectivity catapults digitisation to a new high. Already 83% of rural population access web through mobile phones and it is expected that mobile phones could hit the mark of 1.2 billion by 2017-end.
With the policy of net neutrality permeating the economy, digital access and online connectivity will be within common reach. The mass usage of digital accessories has changed the way business is conducted with seamless electronic transmission of money and financial intermediation. Every commercial/personal transaction begins and ends with the transfer of funds. Hence, infrastructure for settlement of transactions through digital mode can ramp up digital capability.
Digital banking is revolutionising even rural markets with wider acceptability of debit/credit/prepaid cards by even small/micro-merchant establishments. The reach of digital banking picked pace after demonetisation due to the cash crunch. The cultural shift towards digital payments may slow down after re-monetisation but is expected to sustain in the long term as a convenience and habit.
Non-cash transactions in electronic mode have become new normal with neighbourhood shops readily accepting cards. Merchant establishments (MEs) are provided electronic swipe machines by acquiring banks. Such enlisted MEs have to pay a fee to the banks for the incremental business that they get from cardholders. It was only in July 2012 that Merchant Discount Rates (MDR) were reduced for the debit card to 0.75% for transactions of up to Rs 2,000 and at 1% for over Rs 2,000.
But in a strategic move, the government has decided to compensate banks towards MDR for electronic transactions of up to Rs 2,000 from January 1, 2018, for two years. This will make card payments of up to Rs 2,000 free, thereby enabling micro-member establishments to readily accept electronic payments and change the payment landscape in the hinterland in a big way.
Expanding Digital Network
There has been a substantial growth in electronic payment infrastructure, more so after demonetisation. The data of October 2017 indicates that the number of ATMs has reached 2,06,793 while the number of bank branches stands at 1,36,000. The point of sale (PoS) terminals have scaled up to 3 million that reach far and wide, facilitating acceptance of card payments. Contactless cards based on near field communication (NFC) have also entered the payment space. It also stretched to hinterland with banking correspondents working as rural touch points as part of financial inclusion.
The number of credit cards is 34 million and debit cards work out to 826 million. The Rupay cards, from the National Payment Corporation of India (NPCI) being increasingly issued by banks, are gaining popularity while Visa International and Mastercard continue to rule the payment system. The exponential growth in payment network has transformed the digital payment space. Freeing the transactions up to Rs 2,000, which will cover most of the retail payments, will further add to the density of usage.
Safety and Security
While banks have developed robust protection for the electronic payment system with spill-proof firewalls and dual authentication, providing safety is a collaborative function. Customers, vendors, merchant establishments and banks have to work together to keep fraudsters at bay.
The cyberspace is always vulnerable but unless the identity system is compromised, the chances of breach are rare. Customers using payment network at shops and online payment systems have to be sensitive towards likely risks.
The lookalike websites — technically known as spoofing — has to be cautiously avoided and telephonic enquiries on login ID and password should never be responded to. The SMS services of banks should be subscribed even if it is priced. The Reserve Bank of India (RBI) has made it clear that genuine customers will be protected against loss of funds on account of cyber frauds if the incident is reported within three days.
Customers should always check their transactions and remain alert towards SMS messages originating from banks. They need to be an aggressive partner in quickly identifying any lapse in cybersecurity.
With the enhanced thrust on digitisation, banks and other financial intermediaries have to constantly work towards providing safe payment infrastructure and impart digital literacy to customers. When the economy is driven towards more digitisation, the various stakeholders in the payment space have to better collaborate and protect cyberspace by roping in social network and NGOs.
Policy initiatives are specifically designed to expand the formal economy through digital integration. It is up to intermediaries to ensure that payment gateways are kept protected and users are made aware of intricacies of using the electronic mode. With better internet connectivity and speed, electronic payment mechanism will be a better experience provided the users proactively guard themselves.
If all stakeholders in the cyberspace work in cohesion, the aspiration of moving towards a more robust digital economy can be realised. Looking at the prospects, the year 2018 onwards can witness substantial synergy in the digital space for the policy initiatives embedded in the economy. In this league, doing away with MDR can prove to be a game changer and a winning streak in furthering digitisation.
(The author is Director, National Institute of Banking Studies and Corporate Management, Noida)