Page 36 - Banking Finance October 017

ARTICLE

comfortable with mobile wallets today could shift to an If mobile wallets face multiple headwinds, one of the oldest
easier digital platform. cashless options, credit and debit cards, have limited reach.
About 800 million people carry plastic (mostly debit cards,
Frictionless payments is the future, that is, any payment less than 10% are credit cards) and they are generally used
mechanism which is effortless, without requiring users to to withdraw cash from ATMs.
remember too many passwords, PINs etc., perhaps biomet-
rics enabled. There's more to provide a smooth digital pay- Credit cards are a largely urban use phenomenon. Popular-
ment experience than aspects such as security and ability ity of such payment system depends on merchants' accept-
to attract customers who are used to transact in cash and ability which is yet to reach the desired level in the country.
are reluctant to change. Demonetisation saw PoS machine sales go up 200 times,
accelerating use of cards. Usage of credit cards climbed 25%
Future Prospect and debit cards was more than double of that. The future
may be less plastic. Plastic money use is very niche and slow
In the long term, systems like UPI (Unified Payment Inter-
face) stand a better chance as they enable direct transfer and is likely to remain so for the next five years.
from bank accounts to make payments. Wallets Face a Wall.
The winner for access to bank account will be the one that Why carry a card when direct transfer can be done from
offers the least hurdles to complete a payment transaction. the mobile. Among the options available today, Unified Pay-
Mobile wallets are popular today. Paytm alone has more ments Interface (UPI), introduced by the Reserve Bank via
the National Payments Corporation of India in 2016, looks
than 200 million users. But they have limitations.
best suited to enable frictionless transfer of money. Mobile
wallets have been around for more than five years and have
For one, they are not interoperable. Transferring money re-
quires sender and receiver to have the same company's ac- the first mover advantage.
count - its Paytm to Paytm, MobiKwik to MobiKwik and Buddy
to Buddy. So also, transferring money from wallet to bank ac- However, using them is a two step process. Paying for an
count attracts service charge. Besides, the money transferred Ola ride requires money to be transferred first to the mo-
to a wallet does not earn interest. Even the founders of some bile wallet or account and then to Ola. UPI not only allows
mobile wallet companies are not so optimistic about their funds to be sent from one account directly to another, it is
also interoperable. Money is transferred directly from an
future, if challenges like interoperability persist.
account to complete a payment, unlike wallets, where it has
At present, all wallet companies are not allowed to enable to be transferred to a wallet company to be used.
users to access UPI, which enables funds to be transferred
from one bank account to another. By the end of 2017, it's Survivors will be those who provide merchant and user pro-
quite possible that people could be ditching their digital tection. Trusted payment partner is important. UPI app
wallets and opting for UPI or even voice commands to digi- (BHIM), launched by the government, also transfers money
tal avatars to complete payments. The future is about directly between accounts and is linked to the Aadhaar
interoperable payment systems. Apart from lacking number, which will help to authenticate users through
interoperability, digital wallets can be used only by stored biometric records.
Smartphone owners.
Today, digital wallets are popular. Tomorrow, direct payment
In India, only 27% of the more than 1 billion mobile phone systems will score over intermediaries such as mobile wal-
users have Smart phones, as compared to 70% in China. The let and plastic money.
rest use feature phones. Affordability, among other factors,
has hindered the faster adoption of Smart phones. The digi- References:
tal payment option for feature phones is USSD (Unstructured 1. https://www.rbi.co.in
Supplementary Service Data), which transmits data over
2. http://economictimes.indiatimes.com
GSM networks and is popular in Kenya, Bangladesh, Cam-
bodia and Zimbabwe with their respective services, mPesa, 3. http://www.thewindowsclub.com
bKash, Wing and EcoCash. 4. Articles published in e-papers and websites.

BANKING FINANCE | OCTOBER | 2017 | 35

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