Sunday interview - ‘India’s journey towards a cashless economy has just begun’

The Digital India programme is a breakthrough and Swarup Choudhury, managing director, First Data, is amazed at how Prime Minister Narendra Modi put it together. In an interview to Olga Tellis, he says that the government’s cashless transactions is a journey that cannot be done overnight.

What do you think of the government’s proposal to provide tax incentives to debit and credit card holders who make a significant portion of their purchases through cards, and offer tax rebates to merchants, petrol pumps, etc. to encourage cashless transactions?

This is a positive move by the government. It should incentivise the use of credit and debit cards. In the last couple of years, the volume of debit debit transactions has grown with the number of debit cards at 500 million, with over 100 million added under the Prime Minister’s Jan Dhan Yojna. Against this, the credit card numbers are at 20 million with the spending at $30 billion. Incentives for both would increase the use of these cards by the average person. So it is a positive step. Inclusive banking ensures that everyone today has a debit card. In the case of merchants, a waiver of the surcharge would be good for their bottom line. We would definitely see more activity. Korea has done this quite successfully by giving significant tax rebates.

As an experienced company in the global payment industry, do you think the government is going about it the right way?

The government is on the right path. We are way ahead of many other countries in the West when it comes to security and building infrastructure. Like China, India too has launched RuPay, which is part of its initiative to build a payment ecosystem. With Europay, MasterCard and Visa (EMV), and second factor authentication, transactions in India today are one of the safest in the world.

India is said to have the largest number of cash transactions in the world. Do you think it is possible to switch over to a cashless economy?

The card market sees transactions of $50 billion and is growing at 30 per cent whilst the cash market is $750 billion. The number of kirana shops is 15 million, of which an estimated one million have terminals to accept cards. With the explosion in the growth of smartphones to 300 million, there has been a cultural change in the behaviour of people, which will make the transition to a cashless society easier. It may take a while, just as e-commerce did, but which is now growing at 50 per cent per annum.

What are the hurdles to becoming a cashless economy? Do we have the infrastructure for it?

The most important thing that needed to be done was to incentivise e-payments. It would be a motivation for customers and shopkeepers alike. Card users should be given a discount. Banks could also promote cards by waiving the charges for procuring the same. There needs to be a strong infrastructure in place. The whole ecosystem will have to be integrated to create a value chain from the manufacturer to the merchants and then the distributor. Sony, for instance, would save on marketing and other costs and can concentrate on providing other services. Telecom companies already have a network which integrates with the cloud to offer services. There needs to be a lot more government intervention in these matters.

What sort of intervention?

They need to create a payment highway to enable e-commerce. Banks must be asked to put terminals at all locations and create the confidence needed for people to know that their cards will be accepted.

There is a view that tax incentives can never equal the advantages, for instance, of making cash transactions in the real-estate industry or in sectors where cash transactions are popular.

This is a mistaken notion. With the government getting serious about tracking black money, putting a cap on cash for large transactions and the arrival of e-governance, the motivation for people to make non-cash transactions is much reduced. It is also risky. Even real estate companies that are today getting private equity and other funding prefer cashless transactions. The culture is changing. The government should also make tax e-payment more affordable.

What are the advantages of a cashless economy?

The government has realised that there are leakages due to the predominance of cash transactions. So the government will benefit from cashless transactions if it gets information on trade and can track black money; it reduces counterfeit notes in circulation, and brings down the cost of cash handling — it’s a cost that has not been factored in, but is significant.

What are the advantages for the common man?

Cashless transactions would lead to a transformational change. After the technological wave, the next wave is to use technology and automation. And the digital wave is an offshoot of this. Earlier people sent money orders and very often they got lost or stolen, never reaching the intended recipient. All these dangers will recede with cashless transactions as they will be more transparent. Incidents of frauds would definitely be lowered as SMSes will be sent as soon as you make a transaction.

With personal identification number (PIN), RUpay, National Payments Corporation of India, Bill Pay, etc., people have a lot more confidence in cashless transactions and this is one of the great achievements of the Narendra Modi government. Even direct benefit transfer (DBT) with cash going straight to the people has helped.
Another advantage is that business buyers use hundis, bill of exchange etc. All this will be digitised as the payment system today allows quick payment.

Are the incentives offered by the government enough to make people, small shopkeepers and traders shift to cashless transactions?

Today stores and malls offer a lot of benefits, like cash back if you pay by card. Individuals prefer rebates. One has to see what incentives the government gives. But this is a process, a journey, and it cannot be realised overnight. The government is on the right path in this journey towards a cashless economy.

As a former banker, do you feel transaction charges can be reduced? Some banks at present  even charge for the use of ATMs, giving updates on your savings accounts, etc.

Setting up a payment ecosystem is an expensive affair and it requires investment in infrastructure. The business of providing payment acceptance works on the volume model — the business that comes through from a terminal must be enough for organisations running this payment highway to meet their expectations. In order to boost electronic payment acceptance, cost effective point-of-sale (POS) devices known as Mobile POS have been launched in the country, which work out 50 per cent lower than a regular POS terminal and help organisations continue to be in business at current transaction cost charges.