Demonetisation: Technology Is The Way Forward, But The Architecture Needs To Be Improved

The demon of demonetisation has scared the living daylights out of India’s cash-based economy. Whether the aam aadmi is indeed suffering, or whether the quantity of black money unearthed justifies the collateral discomfort, is best debated on social media timelines. But what we need right now is a way to facilitate payments – small, ad-hoc payments – that keep the engines of commerce running. Can technology play a role here?

It can. Here’s how.

We need to popularise app-based wallets like SBI Buddy and Paytm with which people can transfer money to each other simply with their phone numbers. While these are good options prima facie, there are some drawbacks. First, these are closed systems, which means that one can only transfer money to someone who already has an identical e-wallet. For example, one can transfer money from his or her SBI Buddy account to another with an SBI Buddy account and not to someone with, say, a Paytm account. This can be troublesome, but it can be overcome by transferring money directly to someone’s bank account. This, however, invites a transaction fee – 1 per cent for Paytm and an incredible 3 per cent for SBI Buddy. Obviously, this is too high a transaction fee and cannot be accepted.

One solution that is already available in India is the Unified Payments Interface (UPI). UPI is not a software but a set of protocols that allow any e-wallet to connect to (or “plug” into) any bank and transfer money in a safe and secure manner. So, anyone can transfer money to anyone else, even if the other party uses the services of a different bank. This is like NEFT or RTGS, but from a mobile phone and for small amounts of money.

A host of Indian banks have already enabled UPI in their mobile banking software, but unfortunately, the big daddy of them all – the State Bank of India (SBI) – has still not made its software compatible with UPI’s specifications. The technology is not hard to incorporate and already exists. If the government can convince the SBI to fall in line, then, with its vast network and many customers, the UPI platform will cross the tipping point and become the default platform for transferring money in India.

What stops us now? Nothing but the will to do so.

The other significant technology that we can leverage is a Point of Sale (PoS) machine, which can be used by anyone with a credit or debit card to accept payment. The sales of such machines are increasing rapidly, but there is both a cost factor and a time factor involved. These machines cost money and need time to be built and shipped.

What if there was an app that one could download and use on an Android or iOS phone or tablet? All that this app would need to do is accept the card details, including the CVV and the subsequent OTP that the payer would get from his or her bank as a text message on the phone, and transfer the value to a specific account.

Again, this is nothing new. Any e-commerce app, like MakeMyTrip, Flipkart or BookMyShow, is doing the same. The only difference would be that the money will be credited to the bank account of the person who has installed the app, not to the account of the company that builds it.

Square is such an app that is already available, but it does not work with Indian bank accounts. Given that the basic architecture of the product is already known, it should not take long for an Indian company to build the same.

Most of these technology solutions are already available; all that we need is a small task force of people from bodies like the Reserve Bank of India, the SBI, Indian Banks’ Association, National Payments Corporation of India, the Finance Ministry and the Information Technology Ministry to come together and create a roadmap for their implementation in the country. If this can be done on a war footing, we can have a unified solution available in under a month. But for it to happen, this behemoth must be made to move, and to do so it needs a push from the Prime Minister himself.

Sceptics would, of course, complain that such technology solutions will cater only to the elite in the cities and leave the poor in the lurch. That is incorrect. The very poor people are, in any case, not impacted because they do not deal in Rs 500 or Rs 1,000 notes. What is happening is that traders and shopkeepers are not able to sell or transact, and this is impacting the daily labourers they employ. Traders and shopkeepers in the country can certainly afford to buy a smartphone, and it is almost certain that a large number of them already do. The rest of them will certainly get one for the sake of their business.

The final argument is that our traders and shopkeepers want to deal in cash because they do not want to leave an audit trail that can be picked up by the taxman. But now that the die has been cast and they realise that neither they nor their competitors have an option, they will have to get onto the digital bandwagon. And this will prove beneficial for everyone in the long run.