In the Indian ecosystem in which small merchants operate, cash is deeply embedded. The choice, trust, and convenience should be for both the merchants and consumers. Customers in India rarely ask for digital payments, and the upstream supply chain also requires cash payments, though gradually changing after 2016 demonetization. With the same leadership continuum, digital payment players need to ensure consideration of the customer and merchant transaction ecosystems to ensure universal acceptance.
Customer and Merchant demand would increase if, during the adoption period itself, there is a simple and convenient process laid down for their usage. For this to happen, there should be a regulatory sandbox where trials are done by merchants on customers before bringing the system into the marketplace.
Further, an increase in demand can be due to by keeping the fee structure, especially for the unorganized retailer, extremely simple. Other payment service providers (PSPs) must ensure that they provide the necessary support in the form of call center/agent support, toll-free numbers and transparent processes.
To drive the acceptance of digital payments by merchants, it is imperative that PSPs improve the products they offer-with easier processes, reporting, reconciliation. In addition, digital payment players will need to develop more use cases where digital clearly beats cash to ensure the momentum of changing user habitats to carry through situations where digital payment benefits are not so differentiated.
On the other hand, for customers, in order to have expeditious and systematized customer service in all digital payment systems, it is necessary to harmonize the feedback time on customer complaint resolution and to have a compensation framework in place for customers ‘ benefit.
The increasing prevalence of networks and technologies such as the Internet of Things (IoT), Artificial Intelligence (AI) and biometrics has also led to the development of alternative forms of digital payments. Consumers in the Asia Pacific can now use AI-enabled interfaces to pay across multiple channels, including within social media messaging platforms.
These new forms of trade translate for merchants into a more efficient business model that does not skimp on customer service.
Digital payment tools need to offer functionality similar to cash. In an approach like incorporating product variants in local languages, it should be simple. It should be universal in nature that can cover both online and physical point of sale.
Where interoperability is the key between digital instruments and bank accounts, it should be made accessible. Payments are currently time-consuming and therefore the main pillars are the use of technology such as tap and go (NFC, QR codes) and infrastructure connectivity.
Another stress for merchants is the documentation where the government can pitch in for easy documentation and fast and trouble-free KYC processes. By integrating user interaction, consumption, and payment, it can also be made convenient.
Using emerging technologies such as geo-tracking and consumer analytics can be useful in increasing driver use for consumers and merchants alike. This will empower merchants with the necessary confidence to enter the digital payment platform.
Telecom operators, financial institutions, merchant aggregators, payment gateways must adopt best practices in processing, storing, retrieving, sharing and transmitting the sensitive payment and consumer-related data on information security.
Some of the steps taken by different regulatory bodies and organizations will increase the confidence needed in the ecosystem of digital payments. RBI has published guidelines on wallet interoperability, KYC standards that players need to adopt, and requirements for time-specific actions to address fraud experienced by customers. The adoption of the Indus operating system, which supports multiple Indian languages, will also facilitate digital payment for consumers.
Online banking and fraud related to payments are the world’s top cyber crimes. Secure processing of transactions is the basis of digital payments. Most surveys reveal that lack of confidence hinders consumers from adopting digital payments wholeheartedly.
In addition to introducing secure elements in online transactions, financial service providers should also focus on building confidence in all aspects of user experience. This will vary depending on the circumstances and payment methods for example in the case of in-store payments consumers are comfortable swiping their card and entering PIN on the device of the merchant but in the case of doorstep or go payments consumers tend to be anxious to hand over their card and keying PIN on the device of a stranger but would be more confident to make payments from their own devices.
Benchmarking is needed to assess India’s progress against payment systems and tools in major countries and give further impetus to planned efforts to digitize payments. It requires the proactive involvement of all stakeholders (government, financial institutions, merchant acquirers, gateways of payment, issuers, telecommunications operators, regulators).
They must not only educate and raise awareness in the minds of consumers and merchants about the use, benefits, and security of digital payments but also adopt best practices in information security, define and adopt safety standards in the lifecycle of payments transactions.
Inconvenience arises due to digital illiteracy or due to the inexperience of usage of smartphones or the like devices.
Thus, there should be a collaboration between the payment service provider and merchants to make them aware as to how to make and receive such payments.
Similarly, for consumers, the PSPs could launch billboards, advertisements trials at events, expos, etc.. to check their devices and preventing spurious communications. Digital payments should be faster, such as touch-based payments (contactless).
If that transaction takes time to complete, merchants are worried about long queues. To drive large-scale offtake, this must be given disproportionate importance. For example, Axis Bank in co-operation with Kochi Metro Cooperation Limited, in 2017, launched an open loop contactless metro card – first of its kind in India. Among its plethora of benefits, it provides a hassle-free experience of the ride as well as shopping through ‘one’ card.
Regulatory bodies, governments, and payment networks need to collaborate, define and establish a roadmap for secure payment processing, including end-to-end encryption, multi-factor authentication, APIs that participating entities need to adhere to, and security rules that app developers need to incorporate.
To this end, a stakeholder industry body must be established in India to define such standards and the roadmap for their implementation. Maintaining payments safe is a key challenge with an increasingly digital ecosystem. Ensuring that no effort is spared in combating and conquering the security challenges of an increasingly interconnected world is a critical and not an optional mission.
The transition to cashless societies across India is well and truly underway, but it is essential to build on three fundamental principles for all payments: seamlessness, simplicity, and security. A laser focus on this will ensure that we are well on our way to a boundless, cashless world.
The article is co-authored by Harsh Bajpai, policy analyst and Kazim Rizvi, the founding director at The Dialogue.
This is the first article of a five-article series and is based on a recent study around Digital Payments in India, conducted by The Dialogue, emerging research and public-policy think-tank. Check all the articles here.