Theemergence of an electronic payment backbone in India has spurred a rise in electronictransactions, as well as offerings to facilitate such transactions, amidgovernment efforts to bring banking to underserved segments in the country.
In India,the volume of electronic payments climbed 27.1% in the fiscal year ended March31, 2015, while the value of such payments grew 5.4%, according to data fromthe Reserve Bank of India's annual report. Meanwhile, paper-based transactionsdeclined over the same period, with the share of such transactions making up25.4% of total transactions, down from 33.9% in the year prior. Their share invalue terms also declined to 5.4% from 6.2%.
InApril, India took a major step to boost the usage of electronic banking evenfurther with the National Payments Corp. of India's soft launch of a new onlinepayment solution called Unified Payments Interface, or UPI. The smartphoneapplication enables users to perform instant push-and-pull transactions andfacilitates a "virtual address" as a payment identifier to send andcollect money.
"[UPI]represents a milestone for electronic payments and a continuation of efforts bythe government and Reserve Bank of India to expand this channel," A.P.Hota, managing director and CEO of NPCI, said in a phone interview. "It isan exciting time for less-cash banking in India as more banks will join after ahard launch in June."
Initially,29 banks, including state-owned lender State Bank of India, have agreed to provide UPI servicesto customers, Hota added.
Whilethere are several ways to make payments using phones in India, Hota said that asecure system shared by banks paves the way to reach far-flung parts of thecountry, as well as many poor people who lack an account. This is because theUPI system is tied to India's biometric national identification card, known asAadhaar, which works with the country's know-your-customer norms.
"Thebig retailers will see a great change because of these services in more timelypayments," Hota said. He added that utility companies and others thatcollect regular payments will benefit greatly if paper-based transactions arereduced.
RaghuramRajan, governor of India's central bank, has been championing electronic bankingas a way to stem the digital divide and bring more people into the financialsystem. He had also suggested differentiated banking licenses to cater to underservedsegments in the country, such as communities, states with tribal populations,urban poor and farming families, among others.
Theseefforts were not lost on DBSGroup Holdings Ltd., which in late April India's first mobile-only bank.Digibank enables paperless, signatureless and branchless banking on a mobileplatform.
Gettingcustomers to bank with DBS Group and view their mobile phone as the bank iskey, CEO Piyush Gupta said in an interview on the sidelines of the company'sfirst-quarter earnings press conference May 3.
"Wewant the accounts," he said. The CEO added that even though the group doesnot expect to see any profit from Digibank in the foreseeable future, its launchis a watershed moment for banking in India. Gupta believes such innovationswill spread to other markets such as China and Thailand.
"Ithink after decades of trying to move from cash [in India], it's finallystarting to happen," Gupta said.
"Asthe customer experience improves at the front, I do think there will be a rapidshift from cash; faster in the next five years than you have seen in the pastfive years."