Greater policy push required to go cashless

From March 13, 2017, the RBI withdrew all restrictions imposed on cash withdrawals following the demonetisation drive that began on November 8, 2016. Cash-less digital transactions (CDT), which were accelerating under compulsion, have started decelerating since February 2017. And the public seem to have gone back to cash transactions following the rapid re-monetisation since December 2016.

Some slowdown of digitisation of Indian economy was inevitable as CDT has not yet become a mass movement. It still faces a few key challenges.

Customers’ interest needs to be protected, failing which the very purpose of digitisation shall be defeated. Presenting the Budget, finance minister Arun Jaitley had proposed to create a Payment Regulatory Board in the RBI. The proposed Board should have customer protection in the back of its mind while formulating policy for payment and settlement systems.

It is not clear whether customers can approach the Board for redressal of their grievances, at least at the policy level. In case of loss to the customer due to operational problems, either the service provider shall compensate customers the loss sustained by him/her or a third party should bear the loss under an arrangement like insurance coverage or through membership of service providers in the RBI’s Deposit Insurance and Credit Guarantee Corporation, with a pre-defined premium.

Further, the dispute resolution system relating to the payment systems need to be strengthened through legal reforms.

Cash transactions involve both direct and indirect costs. The direct cost of cash transaction mainly relates to the printing cost of currency notes, which is borne by the RBI, while indirect costs are huge in which both payers and payees bear these costs without their knowledge. For example, while the payers may have to be physically present at the point of sale, the payees have to handle cash manually, which involves indirect cost of cash transactions. On the other hand, the benefits of CDT are immense and therefore the cost of providing CDT service should be subsidised.

‘Who should subsidise the cost of CDT and to whom’ is a debatable issue. The government should subsidise such cost to begin with as it can save a lot of expenses arising out of cash transactions in case of B2G, G2B, G2C and C2G transactions. Banks can also bear this cost as they also benefit due to decline in transaction costs. Besides, service providers such as Paytm gain, as they have access to float funds depending upon the magnitude of digital activities.

If it is a win-win situation for every stakeholder, there can be an arrangement of burden sharing among the beneficiaries. Even customers are beneficiaries, and therefore one can argue that a part of CDT cost may be borne by them.

However, the success of CDT depends on use of this mode by the customers and therefore, they should be spared to make it popular. Moreover, under GST, the users of CDT shall bear the extra burden of service tax on almost all services going forward. Hence, it is suggested that user cost of CDT should not fall on the general public, at least at the initial stage of popularisation.

In order to carry forward CDT on a mission mode, costs of CDT should be either absorbed by the service providers or subsidised by the government by building necessary infrastructure required to popularise this innovation.

The proposed Regulatory Board should suggest ways and means to share the burden by RBI, banks, government and the service providers.

Digital services are currently provided by multiple institutions/agencies such as banks, NPCI, Paytm, Mobikwik, mPesa, Idea Money and such other agencies authorised by the RBI. E-wallets and mobile-based payments are gaining ground. Cyber security is important for a customer covering confidentiality, interoperability, privacy, availability (24x7), non-repudiation, incident response and customer protection.

Service providers are expected to prevent data theft, hacking, loss of money, denial of service and software malfunctioning. Unless cyber security covering these aspects is reasonably robust, it will be difficult to gain customers’ confidence in CDT.

An effort is being made to provide robust and secure back-end infrastructure, and last-mile connectivity to users, particularly in remote rural areas. As of now, the infrastructure is hugely inadequate to accelerate CDT in all possible spheres of economic activities. The network available even in the urban areas is weak, let alone uninterrupted services round the clock.

BharatNet and DigiGaon initiatives of the government are a work-in-progress. Wide area network with guarantee of services is needed, failing which penalty should be imposed on the network providers. As CDT is a national priority to increase productivity, a robust and secure financial infrastructure needs to be developed under the government’s patronage.

Government should set the example by doing bulk of its business through digital mode. All G2B, B2G, G2C (citizen) transactions should be in CDT mode. Even consumer to business (C2B) transactions, beyond a threshold (say ₹5,000), should be routed through non-cash mode. Mention may be made about recent initiatives of the government such as Aadhaar Pay, BHIM, Quick Response Code, etc., which are positive steps towards popularising CDT. The entire digital ecosystem should be user friendly, ensuring at least unified payment interface and interoperability besides consumer protection.

Advertisement in different channels is necessary, but this alone may not help penetrate CDT beyond a point. Workshops should be conducted in every village by the service providers so that common people use CDT as a way of life in the 21st century.

The writer is former Principal Adviser and Head of the Monetary Policy Department, RBI