Can India move from cash to card payments?

MUMBAI, INDIA: The Internet and mobile based businesses in India are surely growing but at a slow pace. A key reason to such slow growth is that Indians prefer cash over card payments. Actually, if there's only limited scope of such card payments in terms of acceptance, convenience and transaction, then people are bound to go for cash rather than cards.

According to ItzCash Card's managing director Naveen Surya, about 97 per cent of retail transactions happens in India is done via cash and only about 3 per cent occurs by prepaid/card payments. “So there are huge opportunities of businesses but we need multiple instruments such as mobile payments, prepaid products and card payments,” points Surya.

While, the Indian government is keen on using digital payments as a means for financial inclusion, the whole digital payment model involves many players such as telcos, technology providers, banks, retail partners, merchants, non-banking prepaid instruments issuers, business correspondents as well as regulators such as RBI and TRAI.

Open and Closed ended are the two key business models globally, however the Reserve Bank of India has categorized three business models here – Open, Closed and Semi-Closed ended.

“However for people, the bigger problem is general acceptance and convenience irrespective of the business models followed by businesses. There are many closed end cards, which are specific to retailers henceforth it adds more complexity for the consumers,” says Surya.

State Bank of India's (SBI) general manager N Jambunathan has an interesting point. He says that in the early years, cards were used to evade government taxes. However, he is optimistic in terms of industry perspective, “I don't know how much the prepaid card usage will increase in terms of acceptance and business models due to lack of standardization. However, for banks the ATM or debit cards offer a great scope of cross payment channels and also, the retailers will need business correspondents to work with banks,” he says.

He notes that each payment card follows its own standards which is different for other payment cards. And so many standards around a card further adds problems for banks. “As the industry lacks proper standards, we do need government body or RBI to intervene with the industry to develop common acceptable standards,” comments Jambunathan.

Without common standards, the industry cannot provide an alternative for payments and this is the major area of concern for consumers and henceforth card payments have not been widely popular among masses.

From business perspective, the card payments business is volume driven, however, lower volumes and lesser value transactions remain the top challenge for this industry. “Payment is a volume driven business and the challenge is low value transactions, which makes it very difficult to setup infrastructures and networks,” says TechProcess's CEO, Bikramjit Sen.

“For India, there's a case of aggregation to bring down cost in form of shared services. But with so many challenges, we need a shared services model and also the industry needs an open platform for growth,” adds Sen.

Apart from challenges of technology, infrastructure and total cost, the whole card payment process for the end consumers is cumbersome, where the user needs to furnish all personal and financial details under the Know Your Customer (KYC) criteria.

Moreover, KYC process gets repeated every time consumer enrolls for new card based services, be it payments or prepaid mobile.

Hence, there's huge amount of consumer related information aggregation across businesses that can be used commonly by various businesses to make the KYC forms simpler and easy. “ For every payment process across parties there's KYC process, so we need to have a common third party KYC process for betterment of consumers and businesses,” says Avenues India's director -Operations, Vivek Nayak.

With such complications and challenges around, the card payments business vision of cashless society remains a distant dream. The card payment businesses are yet to have consensus on developing acceptable standards for the industry. Till then, people will have no choice but to go with cash, not with cards.