'Kirana stores to usher cashless India'

In an economy where cash continues to be king, as is proven from the fact that Indians withdraw about $400 billion cash from the approximately 1 lakh ATMs every year, heralding a cashless system is a herculean task, says Uttam Nayak, Group Country Manager for India & South Asia at Visa, the global payments technology company.

In conversation with S V Krishnamachari of Deccan Herald, he expresses optimism that the direct cash transfer scheme (DCT) could change that significantly, as the government is the largest payer of benefits. Of course, a lot needs to be done to motivate Indians towards embracing plastic money. As and when these happen, they will catapult India to become Visa’s second largest market globally, next only to the United States of America.

Do you have any experience of being forced to pay in cash?

Once, I had been to a store in Mumbai to buy some sanitaryware. When it came to paying for it, I proudly took out my debit card, but the shop-owner said he could accept only cash. Then I offered to pay through cheque, he refused, saying, “If I accept a cheque from you, I will have to charge service tax and value-added tax. But I don’t pay these taxes to my suppliers when I buy from them, because I pay them in cash. So, if I take cheque or card from you, my supplier will be in trouble.” Now, here was a situation where even if I wanted to be honest, I could not, because the system doesn’t allow me to. Finally, I withdrew money from the nearest ATM and paid him in cash.

Stock markets also had cash-based transactions before online trading was introduced. What were its drawbacks?

Before online trading was introduced, stock markets served as a platform for using parallel money, by manipulating buy and sell contract notes.

The switch to online trading (around 15 years back) changed all that, weeding out manipulation, ushering in transparency like never before. DCT has the potential to become one such game-changer, if implemented properly.

What are the dynamics of cash subsidy?

The Unique Identification Authority of India (UIDAI) Chairman Nandan M Nilekani’s task force concluded that the government gives away Rs 3 trillion ($60 billion) annually (in the form of subsidy payments and benefits) to citizens. It is estimated that about 40 per cent of this is lost due to pilferage or pocketed by middlemen. Even if it does reach the intended beneficiaries, it is not sure what they do with it; whether it has served the purpose in the first place is not being tracked. That is why Aadhaar-linked bank accounts and cash transfers are so important.

How does Visa come into picture?

We have expertise in moving money in a transparent, efficient, and auditable manner. We can tell where every paisa of the Rs 3-trillion money is, who encashed it at what point, in real time.

How does the government benefit?

The savings potential is about $24 billion; through data analytics, we can identify and weed out duplication and manipulation. In the process, the benefits to the right beneficiaries can be doubled, if necessary.

But does India have the logistics and IT architecture in place, in terms of handheld devices and backup to urge people to go for cashless transactions?

Not right now. That is why there is a need to scale up in a different way. Firstly, we have to look at appointing kirana stores as business correspondents (BCs). These would be Point of Sales (PoS) terminals, which Nilakeni prefers to call micro-ATMs. They would undertake a range of transactions, typically conducted at ATMs as well as merchant outlets.

Can you shed more light on how Aadhaar number is linked to this?

The UIDAI will push the money to the beneficiary based on his Aadhaar number. Simultaneously, we will be able to pull authentic data from the Aadhaar server, electronically populate the application form of the bank and push it to the bank’s server through local technology developed by Visa and instantly give him a Visa debit card. (The government has issued 21 crore Aadhaar numbers, according to the latest data on UIDAI website).

What will be the role of kirana stores, which you suggest, can be appointed as BCs?

Estimates say that there are about 1.5 crore kirana stores in India. Even if a fifth of them are appointed as BCs to begin with, they can serve financial inclusion. Nilakeni has identified Rs 150 crore for the initial 1 lakh PoS terminals to be deployed and UIDAI will fund it. We, on our part, have given 500 PoS terminals in New Delhi to demonstrate our contribution.

How does Visa benefit from this exercise?

More transactions through our network, means more revenue for us. Each time a customer swipes his card, we get a fixed amount. So, yes, there is a commercial intent, but it can also achieve financial inclusion, if done properly.

Who will foot the bill for installing those millions of PoS terminals?

I am talking to corporates, bankers and others. It is a one-time investment of about Rs 3,000 crore. The spin-offs will be many for all stakeholders. The kirana stores will be able to get a new line of income, banks can cut down on installing ATMs and government can save on revenue leakage.

But doesn’t the government already seem to be in a jubilatory mood?

The government is celebrating, but nobody is asking as to what they are celebrating. They are just apparently happy parking the money in bank accounts, for which there is no assigned owner. Putting money into the beneficiary’s account is not enough, it should also enable the beneficiary to utilise the money.

What about the overall practice in India to prefer cash over plastic money?

We should encourage people to go the cashless way. Currently in India, people have about 300 million debit cards, who make approximately 30 billion transactions annually, only to withdraw about $400 billion from ATMs. The transactions at the 7 lakh plus merchant outlets are too low in comparison, valued at about $10 billion annually.   

Are you worried about opposition to DCT from some quarters?

We are sitting on a potential revolution bigger than Facebook. While Facebook is all about social networking, Aadhaar and DCT are geared towards social transformation, social enablement. It would be sad if they get politicised.

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