Transforming the digital payment infrastructure
Implementing a new will require careful planning, patience and flexibility
In the aftermath of demonetization millions of Indians have switched to digital mode of payments and to encourage it government has announced a host of measures.
In order to capitalise on the benefits of demonetization, government will have to acquire a systematic, evidence-driven approach.
Kenya’s M-Pesa, a mobile money service which allows users with or without bank accounts to transfer and make payments through a basic mobile phone, is often heralded as the exemplary digital financial inclusion success story. Since its launch in 2007, M-Pesa has become an integral part of Kenya’s economy:
§ M-Pesa transactions account for 20% of gross domestic product (GDP) and it is used frequently (by at least and by 75% of the )
§ Results from a recent, large-scale multi-round panel survey suggests that access to mobile money (defined as proximity to M-Pesa agents) improved per capita consumption and lifted 194,000—or 2% of Kenyan households—out of poverty. These effects were more pronounced for women and driven by increased savings and greater occupational mobility—185,000 women made the shift from agriculture to business
out of 271 different mobile money services 93 countries worldwide, very fewhave achieved similar levels of growth, particularly among the poor and unbanked.
A unique set of circumstances allowed M-Pesa to become ubiquitous in Kenya. Crucial among them was,
§ High mobile phone penetration (83% of the adult population had access to )
§ A widespread agent network (approximately one agent for every 1,000 Kenyans)
§ An enabling regulatory environment
§ : own a basic mobile phone and there is significant disparity in access and usage across geography and gender
§ :In addition, only 17% of Indians own a smartphone—a major hurdle since, unlike in Kenya where M-Pesa’s USSD technology is independent of phones, most Indian payment wallets are only accessible on smartphones
§ :Finally, India’s business correspondent (BC) model—the equivalent to the agent network in Kenya—remains relatively underdeveloped. Recent research by the Helix Institute of Digital Finance revealed that in the BC model Indian agents earn a median income of $52 per month compared to agents in Kenya who earn $192 per month
For a digital payment system to thrive, all these issues need to be addressed.
besides overcoming financial inclusion barriers, digital payment systems can streamline the
§ Public service delivery mechanisms like plugging leakages in MGNREGS
§ Government to person payments like through Jan Dhan, Aadhaar and Mobile (JAM) wherein payments to the poor are being made directly to their accounts by verifying their identities through biometric identification. Evidence from Andhra Pradesh suggests that shifting to an electronic-payment infrastructure along these lines can improve programme delivery by reducing leakages
In 2006, the government of Andhra Pradesh launched a smart-card programme for MGNREGS and social security pensions where payments were delivered to bank accounts linked with biometric smart cards
A of the intervention by affiliates from the Abdul LatifJameel Poverty Action Lab (J-PAL) revealed that biometrically authenticated transfers resulted in a .
Similarly, in an unconditional cash transfer programme in Niger, researchers affiliated to J-PAL found that mobile transfers were the most cost-effective delivery mechanism and led to improved household and child-diet diversity.
The study done above attributes these results to the
§ Time-saving associated with cashing out mobile transfers
§ Shifts in intra-household bargaining power for women
In Bihar, a J-PAL evaluation of a which allowed panchayats to bypass the district and pull MGNREGS wage payments directly from the state account, found that this without a detectable decline in programme performance
§ : In Niger, the positive impact of mobile transfers relied on significant investments in establishing the mobile payments infrastructure, including access to mobile phones and agents responsible for “cashing-out” transfers
§ : In Andhra Pradesh, despite high-level government support and investment, only half of all MGNREGS payments in the intervention districts were smart-card-enabled after two years—a reflection of the significant logistical, technical and political challenges in establishing new payment systems
change can be disruptive as it upset the status-quo. So, one way of implementation is through gradual steps, incentives and evaluation.
: In Andhra Pradesh, the programme was rolled out while retaining the status quo system, with banks incentivized for every transaction made on the new system—this allowed programme evaluation, course correction and posed minimal risk of excluding deserving beneficiaries.
implementing any new payments infrastructure will require careful planning, patience and flexibility. The government of India should keep this in mind as it seeks to transform the nation’s economy.
Publishes on : 10-Jan-2017 05:05 PM