Towards a digital economy

by Vivek Prasad,

cashless digital

Hurtling towards a cashless society is not going to materialize in a jiffy, despite the momentous opportunity afforded by the demonetisation drive.

Financial experts are of the opinion that a road map  for the rapid adoption of digital payment instruments is the need of the hour. These include mass adoption of  time – tested technologies such as credit, debit and prepaid cards, e-wallets, net and mobile banking, and the unified payments interface (UPI) app that enables peer-to-peer payments.

According to Haricharutha, a financial expert based in Trivandrum, ‘ we need a digital payments security law to be in place very quickly to  address the issues of financial fraud and theft in the digital space. Cyber frauds  need a separate enforcing system which can be part of the regular policing system, but must have the independence and expertise to handle these sort of frauds efficiently and quickly. The existing  system is simply not good enough to address the demands of the digital payments age, when cyber – crimes is likely to grow exponentially, .’

Ramasubramaniam, an insurance agent based Alapuzha feels that there must be insurance safety net for victims of digital frauds. “The crux of the problem in digital frauds is that the loss will be made known quickly, but identification of the fraudster  may take time. This means financial losses must be quickly compensated if faith in digital payments is to be sustained  after the first  reported crime, ‘ says the insurance expert

An insurance system that guarantees all payments up to Rs 75,000 (or whatever limit looks apt) would help in building confidence in the system. The average middle class digital payments user is unlikely to send or receive more than Rs 75,000 in digital payments in most months, and hence this level of insurance seems adequate for now. The premium can be paid through a payment bank or  e wallet firm or a card company.

Mohammad Khaleed a banking expert based in Tirunelveli says that inter – connection and inter-operability among digital transaction players must be ensured. “With the launch of the united payments interface (UPI) and with every wallet company and bank enabling payments from mobile smartphones , there will simply be too many service providers trying to dominate the market. If a Mobikwik user cannot pay a Oxigen or Pockets merchant or customer, then everyone will have to load multiple apps on the smartphone. Digital payments will spike only if the network effect chips in and this implies any customer of any digital payments services provider should be able to pay anyone in the field. This calls for establishing standard operating procedures on interconnecting different payments players, similar to the kind of agreements telecom players now have between them.

Continuing in the same vein he says cash must be taxed. To promote digital cash, physical cash must be kept at a premium. A version of the Banking Cash Transaction Tax (BCTT) introduced by UPA-1 should be brought back in some form, and digital payments incentivised in the initial year  by discounting payments made digitally. The discounts should be given by merchant receivers of these payments.

Finally, many strategists are of the opinion that  cities should go digital first, then followed by the rural hinterlands. The panning of digital payments must be done on a territorial basis, so as to make sure that each city has an eco-system where digital payment becomes the norm than exception, and cash payment becomes a hazard to handle.

Many also opine that the reason why a city like  Bangalore finds it easier than other cities to adopt digital payments is because of its digital culture, being India’s leading tech city. This means adoption should proceed gradually, with the cities taking the lead, the tier two cities following suit, and the rural sector entering the picture at the very last leg. In the months after demonetisation, cash transactions should have been encouraged for the agriculture and rural sector while urban areas should have been forced to go digital promptly.

All said and done all eyes are on the government to see whether they will walk the talk or will they flounder  at the altar of political expediency.

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