Journey Towards Cashless Economy Part 2 Consumer

The objective of this 3 part series is to examine in brief the barriers and motivators for the key players in a Journey towards a cashless society. In part 1 the role of retailer in this journey was shared and can be checked at part 1 in blogs section @ Finextra.

Consumer : Cash “The King” the acceptance ubiquity makes it the first and foremost medium of consumer transaction. In India it enjoys more than 80 % in value terms of the total transactions and it’s a long journey to reach Belgium wherein the Non Cash Transactions as share of total value of consumer payments stands at 93 %. 

To answer what will take for any other mode of payment to get even remotely close to cash . The mode will have to address

1. Payment of key regular use items

Suburban train/Metro/Auto/Taxi/Bus/Electricity/Gas/Water/Milk/Newspaper/Grocery/Prepaid recharges (Mobile, DTH)/Key G2P Payments (Property Tax’s)

1. e-nables access to e-commerce platforms
2. Payment of key financial products : Mutual Fund, Insurance, Savings, Pension and Loan EMI

And the start on above front will be a catalyst to cashless .  This is where the initial investment/long term efforts will be required to educate, activate and incentivize consumer towards journey from cash to Cashless.

To reach above we need simultaneously address below mentioned barriers (If removed) and motivators (If provided) on a long term the consumer adoption story

Barriers

• Multiple KYC environment : Acceptance of KYC performed with one regulator as a legitimate document to enter in another contract. (Either Insurance KYC accepted for mutual fund, Mutual Fund accepted for Account opening, Telecom KYC acceptance for mobile kyc wallet). In Kenya (Single KYC) For consumers if Telco KYC and wallet holder KYC match.
• Restriction on cash out from Wallet (Prepaid Instruments):Current regulations don’t allow cash out from wallet thereby limiting the use case.
• 2 Factor Authentication: This requirement even for small value payments doesn’t provide a seamless experience of a new platform.
• Youth as a driver of Adoption: Student with <18 years of age has to operate an account under parent guardianship. As a result today’s youth who is driver behind mass acceptance of most of the new technology initiatives is excluded from current wave on wallet.
• Additional Card usage charge by Merchant: Merchant charging consumer to pay for card MSF is an unwarranted burden.
• Education (Behavior change) : It’s a long term process and requires consistent investment .
• Interoperability of wallets: The ability to pay from one wallet (m-pesa) to another wallet (Paytm).

 Motivators

• Tax Incentive : A certain percentage of payment made via debit/credit card (a caution is warranted in credit card usage as that may spur growth in per person debt). South Korea is a great example but needs greater debate before offering this to credit card segment. The author believes it will lead to debt driven growth story.
• Acceptance at Mass Transport: Singapore, London where one smart card is used across all modes of public transport. It creates huge incentive and motivation
• Safety and Security : Money kept in wallet is far more safe and secure as compared to cash in bank.
• Incentivisation of early payment using digital channel (While possibly the dis-incentivisation of cash payment can push the use case faster )
• Interest on idle money: The money lying in cash doesn’t generate any return for the consumer however money lying in digital form can.

The key driver to start the consumer journey will be

• Single KYC : Policy level.
• Interoperability of various platforms with NPCI providing a switch
• Acceptance at Key daily usage points