By Kuldip Maity, Managing Director & Chief Executive Officer Village Financial Services
The retail payments scenario is changing fast with the introduction of the electronic payments services in India. Not only that it’s also having a huge impact on the black economy by creating greater audit trail on transactions.
There is believed to be a direct correlation between non-cash payment environment and corruption in any economy. The countries which rely more on non-cash payments have greater audit trail on transactions that naturally tend to limit the scope for corrupt practices.
The country that comes to mind immediately in this context is Sweden which is expected to go totally cashless by 2020 and is known as the least corrupt nation on the world’s economic map. India’s traditional dependence on cash in market transactions, on the other hand, tended to provide a happy playing field for a thriving black economy as it made evasion of transaction audit easy.
India is changing
Things started changing in India from 2005 when the clearing system went fully electronic. This cleared the field for creating instantaneous electronic payments and triggered the evolution of payment instruments like e-wallets, UPI and NEFT among others.
India has traditionally been recognized as a huge cash dependent economy with retail accounting for a huge proportion of it. Things have however started to change and non-cash transactions have started to pick up after the electronic payments system was introduced in the economy. According to the World Payments Report, 2018, by Capgemini and BNP Paribas global non-cash transactions grew by 10.1 percent to reach 482.6 billion. The growth was largely triggered by the Emerging Asia that saw a growth of 25.2 percent adding hugely to the rise in global electronic transactions. Adoption of mobile payment by India saw a growth of 33.2 percent in this specific area. We, however, need to keep in mind that this growth happened on a very low base.
Saturation coverage of electricity and net connectivity
Keeping in mind that the demonetization in 2016 hugely spurred the transition to digital and other electronic payment systems, we must also not lose sight of the fact that we still have a long way to go before we reach any level comparable to countries like Sweden.
We must also remember that electronic payment system, in order to be comprehensively available, needs saturation coverage of electricity and net connectivity. Then there is also the issue of cost in a country like India. POS machines, digital connections, and hardware are still beyond the reach of many. And there is, of course, the other issue of a platform that can channel all modes of electronic payments.
Rise in awareness
However, things are improving fast. Payment infrastructure is improving by leaps and bounds. Awareness about the ease of payments through electronic mode is also rising. But more importantly, the greatest push is and would be sustained by the retail network. Retailers are increasingly getting wiser about the cost of transacting in cash – both from safety and the cost perspective. Transacting electronically is less costly as it takes away the hassle of storing cash and providing changes to the customers. More and more retailers, therefore, are insisting on the electronic payment route which is directly adding to the surge in the adoption of electronic payment facilities by the customers.