Issues that need answers for Digital Payments in the country

The session commenced with the introduction of Mr. Padmanabhan, ex-RBI ED with an expansive experience in banking and payments sector addressed some of the critical questions that the country needs to find answers to for a seamless transition from a cash-rich to a digital economy.

• Bringing the right balance between supply and demand was emphasised as a critical influencer for the shift towards digital. Measuring the impact of incentives towards digital and dis-incentivising cash were highlighted as exigent areas of study to explore effectiveness.
• Proliferation in the number of digital payment players and their offerings has left a sense of confusion in the minds of users, thereby limiting their decision making on the right choice of solution was noted as a key concern that augmented the fear for masses to move towards digital. Catalyst quoted an experiment from the recent merchant adoption drive in Barkat Nagar where merchants were provided a solution comparison matrix that was believed to have helped in quicker decision making on the choice of solution.
• Lastly, the role of non-banks in the payment eco-system and their positioning to drive financial inclusion was indicated as an evolution that the country will see along the way.

NITIAayog’s drive for digital payments in the country

The session commenced with the introduction of Ms. Anna Roy who outlined NITIAayog’s approach towards the mission of 2500 Cr digital transactions for 2017-18, while also highlighting certain live issues.

• Emphasis on the need for evidence based research in policymaking for increasing digital payments adoption. Catalyst’s rapid evidence generation would be helpful in that aspect.
• While implementation remains a challenge after scheme roll-out, understanding why MDR continues to exists as a barrier for merchants to adopt digital payments would assist in merchant on-boarding. Also, in an effort to bring small traders under its ambit, policy interventions need to be formulated accordingly to address the concern. This is another critical area where Catalyst could provide immense value.

Ratan Watal Committee Recommendations for Digital Payments

This session covered the regulatory landscape of digital payments specifically highlighting some of the systemic risk related recommendations proposed by the Committee where the State as a regulator shall own, intervene and have an oversight of the payments system, in-line with best practices from across the world.

• Large scale amendments to the main payments legislation through the Payments & Settlements Systems Act, along the lines of more clarity in the law’s objective, establishing regulatory governance process and propose a structure to regulator’s report
• The set-up of an independent “Payments Regulatory Board” within RBI which is unprecedented and replaces the existing Board of Regulation and Supervision of Payment and Settlements System, as it creates a conflict of interest
• The Board for Regulation and supervision of payment and settlement systems (BPSS committee), now referred to as the payments regulator committee is bound by 3 key objectives to promote Consumer experience & security, competition and innovation
• Regulator make systems conducive by allowing rule making petition and controlled experiments through regulatory sandbox and building institutional mechanism to increase innovation

Insights from Catalyst’s Digital Payment Lab in Jaipur

Catalyst presented learnings and insights from its first pilot experiment in one of Jaipur’s major market- Barkat Nagar. The session started with an overview of the objective of the merchant adoption drive in the market area followed by an overview of the campaign design and key learnings from the ground such as reasons for non-adoption and low activity/usage of the solution. The feedback from the audience indicated the following:

• Influencing digital payment adoption would be easier at B2B segment than for the consumer community given the efforts around literacy should be far more intense to make an impact
• Assessment of the real need for the consumer to pay digitally is a vital driver rather than inundating incentives to force adoption. However, incentives would not be a solution for sustained usage, but can aid in measuring behavioural shift impact. Therefore, perceived convenience can be identified only when there is an opportunity to trial.
• Merchant is a direct influencer for the consumer to pay digitally

Global Best Practices on Merchant Acceptance

A wide range of insights that influence economies to shift from cash to digital was presented by one of Catalyst’s Knowledge & Research Partner – Glenbrook. The session highlighted examples that indicated that interest of merchants across the globe was in increasing sales & revenue. Their driver to accept digital payments is influenced largely by a prevalent & proven opportunity to lower cost base. In summary, some of the key highlights on potential experiments in India that can lead to interesting study models addressed were:

• Is credit a hook for payments has to be validated based on the real market need for small-merchants. Whilst credit has some predictive value on e-payments, the product is yet to evolve and provide greater detail of insights to banking institutions & fin-techs on the cash-position of the merchant to assess his pay-back capability
• Assessment of loyalty as a value-added service should be experimented in the context of Indian market for small merchant community. This platform will capture transaction level data, enhance the consumer-engagement envelope by channelizing digital offers to consumers and providing multiple options of using credit /product-financing at the point of sale, thereby providing data indicators to show if consumer lending is more lucrative than merchant lending