By Vivek Chandok, head of consumer businesses, Tech Mahindra
According to a report from PricewaterhouseCoopers , more than 233 million Indians have never visited a bank, and, for the majority of those that have, their accounts show a balance of zero; Yet India, with a cash intensive economy and a cash-to-GDP ratio of 12% (one of the highest among the developing countries,) and nearly 25 million credit cards in the country [Medianama 2016], is now determined to push its economy into the 21st century by providing its people with access to banking and financial services.
It is hoped that a push into the digital age will encourage a greater proportion of the population, which is at present the second largest in the world, to control their money through digital payment systems.
Creating a wormhole
Recent moves like the introduction of unified payment interface (UPI), Bharat bill pay system (BBPS) and demonetisation of high denomination currency notes has in fact created a wormhole towards realising an ecosystem of cashless digital payments backed by Smart City and Digital India Initiatives.
This will nevertheless create endless opportunities in the digitisation of the economy, reducing dependency on cash and fulfilment of financial inclusion for a country with a large millennial population who are more receptive to technology backed solutions.
This is evident in the growing number of bank-led mobile wallet users which has recorded a 204% surge in value of mobile banking transactions between March 2015 and April 2016, according to the Reserve Bank of India.
India’s retail industry is currently limited by an over dependence on cash. However, with the introduction of the UPI, India is moving towards its goal of a cashless economy. This move from cash to electronic payments is a key focus of the government’s strategy to boost financial inclusion. According to a study by RNCOS, the Indian mobile banking market currently stands at approximately $53 million (Rupee 350 million) but is estimated to increase to approximately $183 million (Rupee 1,210 million) by 2019.
Growing smartphone interest
With the number of mobile phone subscribers at over one billion this year and affordable data tariffs, the smartphone market looks lucrative for both smartphone makers and service providers. There is no doubt that India can replicate the M-Pesa cash transfer experiment in Kenya on much better scale and service with mobility as an omnichannel digital platform for financial services. This could be an opportunity in bringing the unbanked population within the ambit of financial inclusion.
The smartphone market in India is growing at a rapid rate, and it looks as though this growth is set to continue flourishing. Mobile banking itself is certainly thriving according to Quartz magazine, which stated that the uptake of mobile banking in India quadrupled between December 2014 and December 2015.
With an increase of 6.83 million subscribers in October 2015, the total mobile subscriber base in India reached 1003.49 million [Telecom Regulatory Authority of India 2016]. Of those mobile users in 2016, 292 million are smartphone users, with that figure predicted to rise to 416.3 million by 2019, and 467.9 million by 2021 [Statista 2016].
In India, the government’s ultimate aim is to provide the country’s poorest people with access to banking services. Enabling banking and payments through mobile phones is an essential part of this. But how will retailers reap the benefits?
Digitised payments can provide many benefits for small business merchants. A recent MasterCard study  suggested that business merchants aged 35 to 45 were more likely to utilise mobile banking in order to overcome the challenges posed by a cash based payment process. Digitisation can not only reduce the amount of cash retailers need on site, but also allow for transactions as low as one Rupee.
The shortage of smaller denomination currency in India causes serious problems for retailers; they are lacking in cash or do not have the necessary change for their customer, so they either have to purchase loose change at a staggering 15% cost or are forced to make up the difference by giving away products to the equivalent value of the required change. This, of course, keeps the customer happy but is damaging to the business itself. Digitisation can prevent both of these issues.
Mobile wallet opportunity
India does not yet have high credit card penetration; however, the introduction of digital payments and mobile wallets is a big opportunity and a positive trend encouraging many users to sign up. The government is looking to mirror the success of M-PESA in Kenya where the technology was adopted by 65% of households within its first two years of operation. Moreover, with high cost associated with card acceptance infrastructure, retailers adopting digital platforms will have at their disposal a much cheaper and agile instrument at their disposal.
It is important to point out that access to the latest smartphone models is not essential for anyone in India wanting to adopt mobile banking, although it is predicted that digitisation in the country will lead to an increased number of people investing in new technology.
Nevertheless, that is not all that digitisation will facilitate. For a country that is currently so cash-dependent, mobile wallets and digital solutions are looking to transform the payment experience, offering smooth and secure payment methods. This push into the digital age will, the government hopes, offer the chance for better equality in the country, meaning these new approaches are targeted at the poor as well as the rich. Those customers without access to the latest smartphone will have the option to be issued with an app or tag to deal with over the counter payments, recharges, bills and online payments.
Overall, the government’s ultimate goal is to bring financial inclusion to Indian citizens. The rising number of mobile users in India combined with the participation of banks worldwide, will facilitate a strong push into the digital age, providing better access for the ‘unbanked’ population and allowing for the move away from a cash-intensive economy.
Tech Mahindra provides software services, systems integration, professional services, and specialised consulting in the telecom sector.