How the mobile can power digital India

The call for digital cash, or going cashless, has never been as loud and clear as it has been in the past two months across India. One of the positive impacts of demonetisation has been the exploration of alternate methods of payment such as credit and debit cards, online money transfer and payments, use of e-wallets, digital transaction apps such as BHIM, etc. The various means of digital payments have made life a little easier.

However, each of these has one common challenge — low penetration. According to the Reserve Bank of India, a little over 2 per cent of Indians have a credit card and around 59 per cent have a debit card but even these are not accepted at all merchant establishments. In cities, the acceptance of cards is high but in rural India, it’s scarce and challenging.

On the banking side, over 47 crore citizens have an account of which 26 crore are Jan Dhan accounts. A large number of these bank are dormant for want of financial literacy. E-wallets need a smartphone to operate and these are not interoperable with other wallets.

These wallets work as islands; transactions from one wallet to another are not possible and users need to manage multiple digital wallets. It is also natural to weigh these options on the parameters of user trust and security.

Financial inclusion, a major social reform driven by the Government, can only be built on a transparent digital platform which is easy to use. While there are multiple ways to achieve digitisation of payments but by using mobile as e-wallet and by leveraging on the mobile user base of over a billion subscribers, the digital payments ambition can be realised across majority of the population irrespective of smart phones or feature phones or SIM enabled devices.

Mobile phones and its retail distribution are spread across India with far deeper penetration than any other retail distribution infrastructure.

Thus, a simpler option is to allow mobile operators to offer Mobile as E-wallet, wherein the mobile top-ups can be seamlessly transferred to E-wallet for making small value daily transactions.

This small value e-wallet can be offered as a bundled service to 1 billion subscribers, eliminating the need for customer education (payment literacy). There will also not be any language barrier or interoperability challenge since everybody knows how to do a mobile recharge.

In fact, this will be complementary to all other forms of digital payments, as this small value e-wallet will act as a stepping stone to the world of digital payments.

The existing regulations of RBI suggest that mobile top-up are ‘closed wallet’ and can only be used for the services offered by the respective mobile service providers.

This restricts purchases or payment of utility bills, e-commerce shopping or any other digital purchases for third-party products and services. By allowing the telecom wallet to transact with third-party products, the Government can facilitate small-value transactions, linking the buyer and seller through mobile phones in a secure and reliable manner.

Mobile networks have a global standard of security and, therefore, mobile top-up wallets are highly secure. The accuracy of telecom (minute) transactions is a testament to their technical capabilities to handle volumes. Lets not forget, our telecom networks handle about 13 billion outgoing minutes per day.

The reach and easy availability of a mobile phone in the hands of nearly every citizen, whether urban or rural, has overcome the digital literacy barrier. Mobile is clearly positioned to deliver on the goal of financial inclusion.

All we truly need is to allow mobile phones to act as digital wallets for carrying out small-value transactions of up to ₹1,000 daily. With more than 100 crore mobile subscribers, this has a potential of delivering nearly ₹100 billion in digital cash every day into the retail system of the economy. The process is simple and hassle free.

Today, the mobile industry has an unparalleled distribution network supported by all possible payment mechanisms viz. cash, select ATMs, mobile wallets, internet banking, etc. The mobiles can also be linked with their bank accounts subject to e-KYC verification.

A mobile wallet can be loaded from a bank account or any other electronic means currently used for mobile recharge. Moreover, the extensive retail and distribution network of telecom operators is also available for those who may not have a bank account. Currently, the closed wallet with telecom operators is an opportunity lost to make our society truly a less-cash society.

This digital payment solution will be ready to use from day one. It is reliable and secure and at the same time scalable and inter-operable on the strength of the telecom infrastructure. All mobile operators already have pre-paid, intelligent billing systems and with a little hard work they can make mobile e-wallets interoperable as well.

To enable digital payments, four regulatory changes are required:

1. Unified license scope of service should be expanded to include financial services

2. The RBI should allow mobile phone top-up as semi-closed e-wallet

3. Each mobile phone to be used for digital transaction should be verified through an e-KYC process

4. As of now, all mobile revenues are subject to the revenue-share regime (licence fee and spectrum usage charges). The finance ministry and Department of Telecom need to re-tune this process and remove digital mobile transactions for third party purchases from the revenue-share regime to the service tax regime.

Industry can differentiate between voice/data consumption and digital transactions revenues by maintaining two different wallets. Closed wallet for telecom services and semi-closed wallet for retail transactions.

Though the National Telecom Policy (NTP) 2012 identifies the role of mobile phones in financial inclusion, but till now the focus has been to provide connectivity to enable delivery of financial products. Here is an opportunity that will bring financial inclusion in its true sense to the mass market. The line dividing rural and urban market will disappear and the country will see true digital empowerment in the shortest time.

The writer is the CEO of Telenor India