India: A Catalyst for Cashless?

By Madhvi Mavadiya | 20 April 2016

With the number of mobile internet users in India expected to grow by 34 million next year, many have predicted that the subcontinent’s mobile payments ecosystem will also boom. 200 million mobile wallet accounts exist in India and while some of these are not active, the country is set to replace the US as the second largest smartphone market by 2017.

60% of Indian internet users accessed the web for the first time on their mobile phones, according to the BBC, instead of the desktop computer or the laptop. Vivek Belgavi, financial services expert at PwC India, highlighted how the mobile is being used in a different way now. “Earlier, most people used mobile internet for social networking sites. But that’s changing now – as increasing numbers of people are using it to make mobile payments.”

This means that unbanked individuals could benefit from India’s plans for financial inclusion. The Reserve Bank of India (RBI) pledged that it would attempt to redefine banking and reach the 700 million unbanked Indians by encouraging payments banks to target migrant labourers, low income households and small businesses.

At Innovate Finance, Alok Vajpeyi from the Rainmaking Innovation said that “fintech in India is one of the best kept secrets, but there is no acknowledgement of this.” He goes on to say that the subcontinent has always been a tech driven country and on top of this, 40% of the Indian economy is derived from financial institutions, which would make it the perfect place for mobile payments to emerge as an everyday way of transacting.

Vajpeyi explored how while London leads fintech, collaboration between banks and companies is real in India, as he revealed that Startupbootcamp are looking to enter into this country. In addition to this, he added that London is “the best fintech destination because the city has a very forward looking regulator. India can learn from the UK government and the world can learn from India too.”

Last year, in an attempt to revolutionise India’s financial industry, Indian regulators granted licenses to 11 businesses in order to start new payments banks and mobile banking applications. Telecoms and technology groups such as mobile company Airtel, mobile start-up PayTM and UK-based Vodafone were successful applicants, in addition to many corporations that are managed by high-profile Indian businessmen.

However, technology companies operating in transactions, like PayTM, do not have retail networks in rural areas where the unbanked population of India resides, Growth Praxis reported. “Those with payments bank licenses will be able to allow cash withdrawals through a wallet which would solve a portion of the problem,” the report read. Although payment banks will permit international remittances, mainstream mobile payments in India “seems to be a distant dream,” according to Growth Praxis.

Shinjini Kumar, head of banking at PwC in India, believes that changes like these can result in fundamental change in the whole country. “Policymakers think the old methods of expanding the system aren’t working and something new is needed, led by technology. The fact that they [the RBI] have chosen people with deep pockets and strong technologies is a good sign,” Kumar said.

Alongside this, on the subject of whether or not India will continue to cash or crash, CEO of Vodafone, Sunil Sood, believes that the new banking licenses will help the country move forward into cashless banking. “The payment bank licence will enable us to offer a more comprehensive portfolio of banking and financial products and services, accelerating India’s journey into a cashless economy.”

A recent report from Growth Praxis revealed that although mobile payments have been in the fintech space since 2010, only a small fraction of mobile users make payments using a mobile phone. On top of this, those companies that were seen as early innovators in this area, like mChek and Beam Money, have already closed down, Growth Praxis reported.

According to Business Insider, India’s National Payments Corporation (NCPI), with the RBI, is attempting to provide citizens with increased access to their banking services through their mobile phones. This initiative, the Unified Payment Interface (UPI), will use a virtual identifier so that before money is sent, users will receive a message that will ask for authentication and then get their money in real time.

RBI governor Raghuram Rajan believes that mobile payments need to be swifter and simpler. “I have said the Indian banking system needed a revolution. The revolution is upon us. The country has the most sophisticated public payment infrastructure in the world, which can be accessible to anyone who enters the system.”

In addition to this, managing director and CEO of ICICI Bank, Chanda Kochhar, highlighted that the payments picture is not clear, according to Forbes. “UPI will revolutionise payments systems and payment habits in our country. Concepts like cash on delivery and mobile wallets have been interim payment systems and never long-term solutions.”

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