Towards a more robust digital economy

With a policy of net neutrality permeating the economy, digital access and online connectivity will be within common reach. The mass usage of digital accessories has changed the way business is conducted where seamless electronic transmission of money and financial intermediation assumes greater significance. The end state of every commercial/personal transaction begins and ends with transfer of funds. Hence, infrastructure for settlement of transactions through digital mode can ramp up digital capability.

Digital payment system

Digital banking is revolutionising even rural markets with wider acceptability of debit/credit/prepaid cards by even small/micro-merchant establishments. Reach of digital banking picked up new pace after demonetisation due to cash crunch. The cultural shift towards digital payments may slow down after re-monetisation but is expected to sustain in long term as a matter of convenience and habit. The noncash transactions through electronic mode has become the new normal with neighborhood shops readily accepting cards. Merchant Establishments (MEs) are provided electronic swipe machines by acquiring banks. Such enlisted MEs have to pay a fee to the banks for the incremental business that they get from card holders. It is only in July 2012 that Merchant Discount Rates (MDR) has been reduced for debit card to 0.75 per cent for transactions of up to Rs.2000 and at one per cent for over Rs.2000.

But in a strategic move, government has decided to compensate banks towards MDR for electronic transactions of up to Rs.2000 from January 1, 2018 for next two years. This will make card payments of up to Rs.2000 free to enable micro member establishments to readily accept electronic payment mode in a big way. This initiative is intended for digital push in payment space in hinterland.

There has been substantial growth in electronic payment infrastructure, more so after demonetisation. The data of October 2017 indicates that the number of ATMs have reached 206793 while the number of bank branches stands at 136000. The Point of Sale (POS) terminals have scaled up to 3 million that reach far and wide in commercial establishments to enable acceptance of card payments. Contactless cards based on Near Field Communication (NFC) has also entered the payment space. It also stretched to hinterland with banking correspondents working as rural touch points as part of financial inclusion. The number of credit cards are 34 million and debit cards work out to 826 million. The Rupay cards are increasingly issued by banks supported by National Payment Corporation of India (NPCI) that are becoming more popular while Visa international and Mastercard continue to rule the payment system. The exponential growth in payment network has transformed the digital payment space. Freeing the transactions up to Rs.2000 which will cover most of the retail payments will further add to the density of usage.

While banks have developed robust protection to electronic payment system with spill-proof fire walls and dual authentication, yet providing safety is a collaborative function. The customers, vendors, merchant establishments and banks have to work together to keep fraudsters at bay. The cyberspace is always vulnerable but unless the identity system is compromised, the chances of breach are rare. The customers using the payment network at shops and online payment systems have to be sensitive towards likely risks. The look alike websites technically known as spoofing has to be cautiously avoided and telephonic enquiries on login id and password should never be responded. The SMS services of banks should be subscribed even if it is priced. RBI has made it clear that genuine customers will be protected against loss of funds on account of cyber frauds if the incident is reported within three days. Customers should always check their transactions and remain alert towards SMS messages originating from banks. They need to be an aggressive partner in quickly identifying any lapse in cyber security.

With enhanced thrust on digitisation, banks, and other financial intermediaries have to constantly work towards providing safe payment infrastructure and impart digital literacy to customers. When the economy is driven towards more digitisation, the various stake holders in the payment space have to better collaborate and protect cyber space by roping in social network and NGOs. The policy initiatives are specifically designed to expand formal economy through digital integration. It is up to intermediaries to ensure that payment gateways are kept protected and users are made aware of intricacies of using electronic mode. With better internet connectivity and speed, electronic payment mechanism will be a better experience provided the users proactively guard themselves. If all stakeholders in cyber space work in cohesion, the aspiration of moving towards a more robust digital economy can be realised. Looking at the prospects, the year 2018 can witness substantial synergy in digital space for the policy initiatives embedded in the economy. In this league, doing away with MDR can prove to be a game changer and a winning streak in furthering digitisation.

(The author is Director, National Institute of Banking studies and Corporate Management. The views expressed are strictly personal)