Steering india to a cashless economy
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My talk on 'Steering India towards a cashless economy' @India Payments Technology Summit 2016
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Steering india to a cashless economy
- 1. Steering India towards a cashless economy Varsha Sutrave Head – Partnerships and Alliances UnoPay
- 2. 233 million Indians have never seen a bank zerO balance accounts Only 1% India’s total purchases through credit cards 95% cash economy 97.5% corporates have lowest visibility of cash position 480 man hours/week wasted in cash assessment Send/Receive money -Phone number -An Adhaar number -Simple virtual-payments address India stack -APIs -Interfaces Save on Cost of Cash
- 3. “The 2016 Global Payments Insight Survey: Merchants and Retailers” A survey of more than 1000 retailers, revealed that merchants, billing organizations, retail banks and transaction banks are all committing significant investment to payment over the next 18-24 months.
- 4. The move to ‘less cash’ has already started.
- 5. The smartphone—already a Swiss-army knife of information, content and entertainment—is rapidly becoming a convenient medium for making payments.
- 6. What makes mobile more powerful than any other medium? It provides the opportunity for: bi-directional, real-time, interactive relationship with end users
- 7. Means to achieve cashless economy Mobile Internet & Connectivity New-age payment devices Security Infrastructure
- 8. Consumers want personalized experiences, but their privacy & security concerns are higher than ever. “We want our money safer than our selfies“ – PayPal
- 9. “Technology has a multiplier effect for solving social problems” Tarun Khanna Harvard Professor and Chairman, Expert Committee on Innovation and Entrepreneurship, Govt of India.
- 11. Aadhaar reached its milestone of registering 1 billion people. 80% of population covered
- 12. Barriers & Catalysts in the Payments ecosystem
- 13. Barrier #1 Tax evasion opportunities ensure cash is sticky
- 14. Catalysts Disincentives for tax evasion: Use of cash for large transaction is the rational choice. Costs of non-compliance have to be greater.
- 15. Barrier #2 Majority of wage earners receive cash payments that never enter the electronic payments ecosystem.
- 16. Abhishant Pant’s 50 day cashless journey
- 17. Catalysts • United Payments Interface • Receiving & Withdrawal is done… Spending yet to take shape
- 18. Barrier #3 No clear roadmap for moving towards market determined charges & investments.
- 19. Catalysts • New bank licensees and well funded fintechs will ensure price wars, at least in the short run. • Map incumbents and disrupters • Creative business & revenue models
- 20. Barrier #4 Non-interoperable systems could increase resistance among consumers.
- 25. Lets rethink payments in every sector! Hospitals Tolls, Petrol stations Utilities Schools, Colleges, Institutions Travel sector Kiranas Public transport
- 27. Insight #1 The less information the consumer has to manually enter, the better the adoption rate.
- 28. Insight #2 High demand in the B2B space, however current regulations and market dynamics play spoil sport.
- 29. Insight #3 Cost is too high for small ticket transactions.
- 30. Insight #4 Consumer’s expectation that - they can get what they want with ease and speed will continue to rise.
- 31. Insight #5 We need Regular and faster settlement:
- 32. Insight #6 Alliances and meaningful partnerships. India needs to build bridges between startups, corporates and governments to accelerate the benefits of entrepreneurship and generate more leapfrog effects.
- 33. Let’s craft a renaissance in the Indian payments space
- 34. …because a billion lives will thrive !
Notes de l'éditeur
- Inspired by Nandan Nilekani talking about ‘Are we witnessing a Whatsapp moment in Finance’. See my blog on this talk http://startupsutras.org/?s=whatsapp More than 233 million Indians have never been to a bank, and most accounts have a balance of zero, according to PricewaterhouseCoopers. Only 1% India’s total purchases through credit cards The world average hovers around 9% says RBI Credit card usage in India lowest in world Almost 97.5% of leading companies in the country have lowest visibility of their cash position due to dominance of cash payments for spends rather than use of e-payment channels, Says 'Cash Flow Visibility Index Study' Corporates spend up to 480 man hours per week manually entering data in preparing cash assessment reports -------------------------- All of this is set for a dramatic change -------------------------- All that India will need to send/receive money is: -Phone number -An Adhaar number -Simple virtual-payments address India Stack is a complete set of API for developers and these would enable the ease in integration to authenticated Apps. Tally could automate all outgoing payments and provide the cash analysis Save on ridiculously high Cost of Cash With 76.5 B pieces in circulation the operational cost of managing this cash is $ 3.5 B. However, even bigger is the loss on account of dead cash lying in wallets rather than in an income generating instruments. Add to this - loss of money by due to the physical form in disasters like flood, fire or robberies is an unsung loss, whereas loss of electronic money could only be due to security breaches or fraud.
- I’d like to highlight some pointers on Why is this happening? Specifically at this time in the era.. Let’s take a close look at what led to this explosion. Connectivity and rise in Internet traffic. Non-metro cities, towns and villages are witnessing increased internet usage An android phone now costs just about $50-$60, translated to about 3000 INR which the Amazons & Flipkarts might further reduce this over their discount war game! All of this coming together is making it more possible than ever before.
- According to data with Nielsen Informate Mobile Insights, the most popular mobile payment apps in terms of time spent, are those that provide services over and above pure payment like mobile recharging, ability to reading news, book movie tickets, shopping and so on. This ability to multitask creates a ‘sticky’ factor with users.
- Every entity/ organization/ startup working towards this vision is achieving it through one of these means or tools so to say: 1. Mobile and it’s massive potential 2. Internet’s exponential adoption 3. In-store devices finding their way 4. Advancement in security/fraud-protection Most experts and industry thought leaders bet on mobile being the chief element in disrupting cash because However, I’d like to believe that in a heterogeneous landscape like India’s.. Although mobile will be prominent yet there will be fair mix of all of these four/ or there could be permutation-combination of them. There’s enough market for every player and anything well executed will cover some ground.
- With the world getting flatter by the day.. Gone are the times when it would take a decade for a western trend to hit the indian markets. The FMCG revolution that happened in the west in probably the 80’s showed up here only in the 90s. The mall culture that was there in the 90s.. Took form in India in may be early-mid 2000s. What happens in the US,UK or in the developed world is happening simultaneously in India or Africas - and probably in a more effective way with all the jugaad innovations that’s a natural instinct for us Indians. I could watch my favourite Game of throne episodes as soon as it is released Which is why experts warn “Stop saying that we are creating India’s version of an American product or service – we are innovating today in completely new ways,”
- Source: WORLD PAYMENTS REPORT 2015 https://www.worldpaymentsreport.com
- In a number of countries, two separate, but potentially complementary policy agendas have emerged in the past five years: governments have sought to increase the use of electronic means through government payments and to promote greater financial inclusion. While the two agendas have by no means converged yet, in practice they have often been translated into a single headline objective: to increase the proportion of government social cash transfers who receive payment directly into a bank account. Similar to India’s Direct Bank Transfer scheme.
- Problems & Solutions Problems plauging this sector & some possible solutions which might chart a roadmap to accelerate electronic payments.
- 1. Tax evasion opportunities ensure cash is sticky. Let’s be honest, almost everyone looks at how they can pay the most minimal tax. Panama papers: Richer & Bigger you get, you tend to run away from taxes We have this saying that the best CA in the city is the one who saves you most taxes.
- SOLUTION Disincentives for tax evasion: This may be one of the most significant steps to be taken by the authorities. To tip that scale, costs of non-compliance have to be greater. In the absence of disincentives for tax evasion, use of cash for large transaction is the rational choice.
- Majority of wage earners receive cash payments that never enter the electronic payments ecosystem. Maids, Drivers, Helpers constitute this huge chunk.
- Interesting story: Abhishant Pant - His maid - Uber Driver Controversies apart – Travis Kalanic is changing lives across the world And this my friends, is the power of digital money
- SOLUTION To create more & more avenues for them to be able to spend electronically for their daily needs. Receive instantly through UPI – as ubiquitous as cash Receive & WIthdrawing can be done electronically as of now. Spending yet to take shape
- This may be the most difficult challenge for all parties concerned. -common versus own infrastructure -transactions on interchange vs free transactions
- 1. Affordability: New bank licensees and well funded fintechs will ensure price wars, at least in the short run. This is not a solution per se, it’s almost inevitable. Paytm announced it would not charge it’s offline merchants any MDR. having the first mover advantage, and unlimited funding.. This cost will be easy to absorb. However, it might ruin the pitch for other entrants which could otherwise have been a level playing field. I won’t be surprised to see a similar pattern to e-commerce where it become more of a discount game to acquire customers and generating revenues will be a distant dreams. Not a big fan of this approach. I’m more traditional when it comes to business sense. -there are no right answers 2. Map incumbents and disrupters We have Banks, credit card companies, telcos, retailers, e-tailers, on one hand That have a large user base We do a cross pollination with: Innovation labs and startups that help with the disruptive tech. -- 3. Creative business & revenue models You must have come across many merchants still shy of accepting cards even when you spot the EDC machine at their billing desk. When I shop around Chickpet, some of them even say they will transfer the 2% to me. They are a small business and cannot afford to give you convenience services on thin margins. When banks realized this, they came up with smart moves like getting them to maintain a current account with a certain balance and translate that into 0% MDR. This is what needs to fly a lot more. Get creative Flat fee or % of equity Freemium model We need to experiment and test this out.
- 4. Non-interoperable systems could increase resistance among consumers. Willl delve into some details here because this in my opinion will be key driver for the some breakthrough changes.
- NOTE: These are excerpts from an insightful whitepaper published by a firm called Digital Disruptions. Source: http://www.digital-disruptions.com/wp-content/uploads/2015/06/ddInteroperability.pdf Due to their importance in people’s daily lives, financial and telecom industries have traditionally been pioneers in enabling interoperability.
- Self explanatory slide
- Self explanatory slide
- Self explanatory slide In my opinion, similar to what history shows us, unicorns in India like Paytm who are now holding a position of dominance & a large pie of the market share will come around and alliance with small-mid players in the coming years
- Now let’s take a moment to rethink payments in every sector that largely impacts life: 1. Hospitals - in-patients wouldn’t need to wait for hours before they discharged. Insurers, Care providers & TPA’s speak to each other to get this sorted. Imagine, the psychological & emotional relief for both the patient and their family 2. Petrol, tolls etc.. Fastag RFID 3. Utilities – payments will be highly simplified in this space going forward 4. Schools, colleges and other institutions - Get notifications/ reminders on your phone for your child’s fee & pay it on-the-go. No demand drafts and all of that 5. Travel - Ticketing - train,bus, airline ticketing has already seen the light with online transactions. That apart.. Travellers cheques/forex cards will be history. You need not carry In fact, my husband & I are travel enthusiasts and I’d like to dream of a day when I won’t have to bother with currency exchanges no matter which part of the world i’m in! I guess the bitcoin guys will help us achieve that. 6. Kiranas - will see reduction in cash handling & effort that goes into it. Time spent in cash reconciliation. Instead, They can really just focus on their core operations and scale at speed. More business growth = better quality of life for them & their families. We see how all of this has a domino effect! 7. Public transport and change tendering - We’ve already experienced this convenience with cabs and certain autorickshaws too. It’s a pleasure indeed & i’m sure you will all agree. Same with other public transport systems - Buses, Metros. All of this translates into the fact that... You may never have to carry or swipe your credit card in the near future (of course, physically i mean. We will still continue to use/exploit the grace 45 day credit window that we get) In fact, we may not be carrying our wallets soon enough. They might soon be extinct just like radio sets & film rolls with the advent of smartphone!
- WHY WE ENVISIONED A PRODUCT LIKE UNOPAY If you’ve used an Uber, you would have paid though Paytm most likely, If you’ve shopped at your favourite e-com site, you may have your credit card. At your neighbourhood store - cash. Fav multinational retailer, their loyalty card - point system. Employee at an MNC, you have used Sodexo to save taxes. As wallet users, we experienced the frustration of merchants dictating which wallet to use instead of the customer enjoying the freedom of deciding what wallet to use. This leads to fragmentation and an eco-system that creates silos. With this in mind we launched UnoPay last October. Think about a world where you can pay any merchant (online, retail outlets or to govt.) without worrying where you have money, be it a bank account, credit card, digital wallet, cash card, a meal voucher or a gift voucher and many more. All you should need 1 device and 1 application. Hence the nomenclature “UNO”pay With this, we wish to illustrate the potential for a large-scale change We aim to do our bit in contributing towards this larger cause of taking India cashless. To migrate an economy from physical to digital – One needs to be able to convert from Physical cash to Digital money and vice versa any hour of the day. That comfort is needed for a long time until transacting digitally becomes second nature. And we all know it.. for something to become second nature, the best bet is to kept it closest to what is current norm or habit is. Absolutely minimal deviation. Hence, we realized this early on and built our product on this premise. The key lies in making it so simple to use that it provides the same simplicity that cash brings. We’ve worked hard to draw a great balance between simplicity and security. It’s just been a couple of months we went to the market with UnoPay. As we signed up users and acquired merchants, needless to say we learnt new things every single day. And I would like to share some key insights based on our learnings as I strongly believe it would benefit all of you, being stakeholders this super dynamic industry. Insight #1 The less information the consumer has to manually enter, the better the adoption rate. On our app, once the initial setup & sign-in is done... a user would just have to tap - pay now and show the QR code that comes up on the screen to the merchant for him to scan. Less is More as per much awaited Mary meeker’s internet report Understand the behaviour transformation of todays millenials Mobile/Payments is not just a technological phenomenon but psychological and sociological too. The old shopping paradigm of ‘touch and smell’ has been replaced by ‘see and hear.’ Consumers want to do more of whatever takes less effort.
- Insight #1 The less information the consumer has to manually enter, the better the adoption rate. On our app, once the initial setup & sign-in is done... a user would just have to tap - pay now and show the QR code that comes up on the screen to the merchant for him to scan. Less is More as per much awaited Mary meeker’s internet report (http://www.kpcb.com/internet-trends) Understand the behaviour transformation of todays millenials Mobile/Payments is not just a technological phenomenon but psychological and sociological too. The old shopping paradigm of ‘touch and smell’ has been replaced by ‘see and hear.’ Consumers want to do more of whatever takes less effort.
- Insight #2 High demand in the B2B space, however current regulations and market dynamics play spoil sport. The B2C space always gets the limelight, due to the glamour quotient and big advertising spend. The funding and the Unicorn status. However, it’s the manufacturing sector and B2B players that make trade possible at the back-end. To give you a perspective, Sachin & Binny Bansal of Flipkart do not run the largest e-commerce company in India. S-U-R-P-R-I-S-E-D?!?! It is run by a man called Viresh Oberoi, CEO & MD of mjunction, which was started as metaljunction.com in 2001. In 2013-14, the comapny’s Transaction value was Rs.43000 crores as compared to gross merchandise value of Flipkart same year which was Rs.6000 crore. Brijesh Agrawal, Founder, Tolexo and of Indiamart fame says “We get double the margins compared to B2C” So how big is this sector? The global online B2B market is expected to be twice as big as the B2C market by by 2020 at $6.7 trillion as per Frost & Sullivan. According to a study by Walmart, the Indian B2B e-commerce industry is currently valued at $300 billion and is expected to touch $700 billion by 2020. As per IAMAI-Delloitte e-commerce report, the present valuation of online B2C business in the country stands at $16 billion in 2015. We at UnoPay spoke to the largest FMCGs in the country to Truck-transport aggregators to Wholesalers association in the city and found that there is need to be fulfilled with respect to electronic payments. Customized solutions can be built Interfacing with ERPs to fully automate payments Eliminating cash handling Enabling distant payments ….among other things
- Insight #3 Cost is too high for small ticket transactions. What does this cost entail? The fees commonly known as ‘per transaction fee’ is the fees incurred by the merchant every time they processes an electronic transaction. It generally constitutes 0.5-%1.75% depending on the payments service provider. So for every 100 rs transaction, it’s almost stands at rs.2 With the government in full-throttle mode to discourage transactions in cash, We are certain these numbers are set to reduce. In february, we already saw the credit card service fee being waived off… and lets hope more such good news is to follow.
- Insight #4 Consumer’s expectation that - they can get what they want with ease and speed will continue to rise. Thanks to the e-commerce & delivery guys who’s set the bar high for us. And we’ve heard it from the co-founders of Flipkart and Ola that “Indian consumers have been more receptive to e-commerc than they expected. And with our beta pilot of UnoPay, I can vouch that Indians are becoming comfortable with e-finance. Not only comfortable, they are getting addicted to this ease and convenience. (which is healthy sign for all of us, we want consumers hooked to our products, don’t we!) Story: UnoPay Merchant Acquisition team When we have our merchant acquisition team in the market who demo how to to use the app to accept payments, it happens so quick - under 3-4 second and with just one-tap.. The Merchant’s reaction is like - Is it really done? And in the live environment when they’re doing real-world transactions, they often have customers ask.. Is that it? Payment done? It even amazes us :) So we need to understand the psychological and behavioural shift because these very customers are not new to e-payments but used to the grind of pulling out a plastic card, handing it over to the merchant, he then swipes while wait gazing around, he then hands over a receipt and your card which you have to again put back safely. Thankfully most stores now do not ask for the meaningless signature on the merchant copy slip. Now, with UnoPay when they dont even have to hand over their phone or anything to the merchant. And it happens in a jiffy, they have the natural urge to re-confirm.
- Insight #5 We need Regular and faster settlement: When you are competing with force like cash wherein full and final settlement is immediate……… the competing product should be in a position to offer similar experience. We have merchants who do not have steady working capital and rely on day-end collections to make payments to their suppliers. A few wallets are now supporting 1 day settlement
- Insight #6 And finally, my favourite piece of the puzzle - alliances and meaningful partnerships. I think India needs to build bridges between startups, corporates and governments to accelerate the benefits of entrepreneurship and generate more leapfrog effects. Again, to cite an example of this... at UnoPay.. To incentivise and encourage merchants get on to digital payments using our platform we have partnered with alternative lending firms who help merchants with working capital loans. We also have another lending partner who helps customers with unsecured short-terms loans and students with EMIs. We also alliance with ePOS & mPOS organizations to help complete their mobile payment piece. We’re also investing in Digital and Financial Literacy. Social arm of UnoPay Working on programs to educate small businesses about the benefits of being tax compliant and lose the fear of the taxman. We think …It’s crucial to bring them within the fold of formal finance.
- With… Interpenetrating ecosystems, A youthful population, Adhaar, India Stack infrastructure Smartphones adoption India is well poised to craete a Renaissance in the payments space.
- To conclude.. The opportunity is substantial, and the challenges are daunting. But one thing is for sure—There has never been a better and more exciting time to be on top of your game ….because a billion lives are set to thrive!