November 24, 2016

Smart-wallets to facilitate demonetisation

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 the sterile but bloody timelines of social media, 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 certainly can. Let us see how.

First we need to popularise software, app-based wallets like SBI Buddy and PayTM with which people can transfer money to each other merely on the basis of their phone numbers. While prima facie these are good options there are some drawbacks. First these are closed-systems, which means that one can only transfer money to someone who already has an identical wallet software. This means, for example, that a person can transfer money from his SBI buddy to someone who has SBI Buddy but not to someone who has PayTM. This is troublesome but can be overcome by transferring money directly to someone’s bank account but this invites a transaction fee -- 1% for PayTM and an incredible 3% 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 Universal Payment Interface (UPI). UPI is not a software but a set of protocols -- let us think of them as specification of plugs -- that allow any software wallet to connect to ( or “plug”-into) any bank and transfer money in a safe and secure manner. See this Swarajya article to know more about it. With UPI,  anyone can transfer money to anyone else irrespective of the bank that is used by the other party. 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 -- State Bank of India -- has still not made its software compatible with the UPI specifications. The technology is not at all difficult and it already exists. If the government can convince the SBI to fall in line, then, with its vast network and crores and crores of customers, the UPI platform will cross the tipping point and help make it the default money transfer platform in India.

What stops us? Nothing but the will do so …

image "borrowed" from YouthApps


The other significant technology that we can leverage is Point of Sale (PoS) machines that can be used by anyone with credit or debit cards to accept payment. We already understand that sales of such machines are increasing very fast but there is a both a cost and a time factor involved. These machines cost money and need time to build and ship.

What if we had a software App that one could download and use on an Android / IOS phone or tablet? All that this App would need to do would be accept the card details, including the CVV and the subsequent OTP that the payer would get from his bank on SMS and transfer the value to a designated account. Again this is nothing new. Any eCommerce App -- like MakeMyTrip or 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 any time 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 RBI, SBI, IBA, NPCI, the Finance Ministry, the Ministry of Electronics and Information Technology, NASSCOM and the CII to sit down and create a roadmap for their implementation in the country. If this can be done on a war footing, we can have an unified solution available in less than a month. But for it to happen, this behemoth must made to move and to do so it needs a push from the Prime Minister himself.

Sceptics would of course crib that such technology solutions will cater only to the elite in the cities and leave the poor in the lurch. That is wrong. The extremely poor people are in any case not impacted because they do not deal with ₹500 or ₹1000 notes. What is happening is that traders and shopkeepers are not able to sell or transact and this is having an impact on the daily labourers they employ. Traders and shopkeeper in the country can surely afford to have a smartphone and it is almost certain that a large number of them already do. The rest of them will certainly get one if they need to run their business.

The final argument is that our traders and shopkeepers want to deal with 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, willy nilly, have to  get onto the digital bandwagon. Because the only other option left for them would be to NOT sell -- and instead, sit, twiddle their thumbs, sulk and curse Modi for unleashing this scourge on them.


A slightly different version of this article was published in Swarajya in the aftermath of the Demonetisation drive unleashed on country.

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