The government has followed up its decision to discontinue older high-denominations currency notes with a strong push towards fostering a digital payments ecosystem. A committee of secretaries led by Niti Aayog CEO Amitabh Kant was instructed to come up with the tools that could be used to make financial transactions without the involvement of cash. While most of these tools were already rolled out previously, banks and other financial services firms have started prioritising their expansion.
These tools are meant to facilitate transactions not only for the payee, but also for merchants — both small and big. Small merchants and businessmen involved in the informal sector were pegged to be the worst hit, but the committee of secretaries, which also comprises IT ministry secretary Aruna Sundararajan and the CEO of Unique Identification Authority of India (UIDAI) Ajay Bhushan Pandey, has identified tools that could bring anybody with a bank account on board for cashless payments.
Cards, Point of Sale machines
According to data provided by the Reserve Bank of India, there were around 75 crore debit and credit cards in the country, and almost 72 crore of these are debit cards. A senior government official said that most of these debit cards are used for the purpose of withdrawing money from ATMs. Most basic payments can be made via debit and credit cards to merchants that have a Point of Sale (PoS) machine.
A merchant can acquire a PoS machine from a bank in which he or she holds an account. Banks provide a PoS terminal free of cost to their account holders, but they charge a merchant discount rate (MDR) as prescribed by the RBI. Different lenders have different eligibility criteria for deciding whether a terminal should be provided to a merchant or not. For example, the Union Bank has prescribed that the turnover of the merchant through cards should be over Rs 50,000 per month.
The MDR, or the commission that a bank charges the merchant, has a cap decided by the Reserve Bank. However, some banks take lower commission from businesses with high transactional volumes.
For a debit or credit card holder, this commission, which the banks charge, is sometimes passed on to the customer and results in a nominal 1-2 per cent additional charge on card payments. Temporarily, the banks have waived off the MDR to encourage card payments.
Traditionally, the idea of a PoS terminal was a bulky machine connected to a telephone line. This equipment would set back a bank by almost Rs 15,000 to Rs 16,000 per machine. These are called PSTN-based PoS terminals. Nowadays, several other models of PoS terminals have come to the market. These include desktop GPRS, which gets connectivity through a SIM card but is connected to a power source, and portable GPRS, which also gets connectivity through a SIM, but is powered by an inbuilt battery. Mobile PoS terminals are also available for Rs 3,000 to Rs 6,000 and are mostly used by e-commerce companies to collect payment by credit and debit cards upon delivery of the orders.
Electronic wallets, or mobile wallets, have seen a manifold growth of usage since the November 8 announcement, which was spread throughout the country, and not only the urban centres. These wallets actually play the part of a physical wallet in the daily lives of people in a sense that money is pulled out of the banking system when it circulates in the system of a wallet operator. From a consumer perspective these wallets, or prepaid payment instruments, such as Paytm, Mobikwik, FreeCharge, Oxigen, etc can primarily be used for making payments for mobile recharges, utility bills, etc but are now expanding to be accepted at toll plazas, metro train stations, and petrol pumps.
With the immense success of these wallets post the discontinuation of old notes, it is important for customers of these wallets, especially the first time users, to ensure that the wallet apps are downloaded on mobile phones from trusted sources such as Google Play Store, App Store, or the authentic websites of the wallet issuers. Some of these wallets are also available in multiple regional languages.
To use these wallets, all one needs is a smartphone with an active internet connection. Several banks, both public and private, have also launched wallets like SBI Buddy, ICICI Pockets, etc for payment purposes. To open a wallet, a customer needs to fill up the basic details like mobile phone number and e-mail ID. Once open, it can be loaded with money through debit card, credit card, net banking. If one is using a wallet issued by a bank, loading money is simpler if the account and the wallet are connected. As per the latest RBI notification, a maximum of Rs 20,000 can be put into a wallet per month. However, if KYC details are provided to the wallet issuer, the Rs 20,000 limit is removed.
The money in the wallet can also be transferred back to a bank account at a 1 per cent charge.
Unified Payments Interface (UPI)
The National Payments Corporation of India (NPCI) rolled out the UPI platform in April, but it failed to gain traction with several large banks coming on board only post November 8. Fundamentally, UPI uses the Immediate Payment Service (IMPS) platform to transfer money between two bank accounts. The UPI is a better universal option than electronic wallets in terms that interoperability within wallets is not yet allowed in India. As it stands, for example, a user cannot transfer money from his Paytm wallet to a FreeCharge wallet. That is not the case with UPI.
The user has to download the bank’s UPI application, which is currently only available for Android devices, and create a virtual payment address. The virtual payment address is like an e-mail ID. As per the availability of an address it can simply be yourname@icici or yourname@hdfc, etc. Once this is done, the user will need to generate an MMID, or Mobile Money Identifier, which is a seven digit random number issued by the bank upon registration. The payee will need to identify the recipient on the basis of the MMID and the virtual address.
The MMID generation can be a bit complicated depending on the bank’s application. It can also be generated by sending a simple SMS to a number stipulated by the bank. There are other methods to use UPI as well. For example, ICICI Bank’s UPI service also allows the payee to scan the QR code via the phone’s camera to identify the recipient, which could save the hassle of manually entering the details.
Unstructured Supplementary Service Data (USSD)
While most of the cashless methods of financial transactions mandate use of a smartphone, the USSD method works on the voice network and can work on a feature phone without an internet connection as well. As far as the functionality to check a bank account balance is concerned, it is as simple as checking the phone’s prepaid balance.
The service, which works only if a mobile phone number is registered with one or multiple bank accounts, works upon dialing *99# from the phone keypad. The phone sends a USSD message asking for the first three letters of the bank or its short name, or the first four letters of the IFSC code. For example the account holder of State Bank of India should enter ‘sbi’, that of State Bank of Bikaner and Jaipur should enter ‘sbj’, ICICI Bank account holder should enter ‘ici’, and so on.
The phone then fires a message with options to check account balance or transfer money of the bank account that is selected. Checking balance is simple, but transferring money requires a UPI-like method, which needs the MMID.
Apart from English, the USSD banking service, also known as National Unified USSD Platform, is also available in 11 other languages. The short codes to access the languages are *99*22# for Hindi, *99*23# for Tamil, *99*24# for Telugu, *99*25# for Malayalam, *99*26# for Kannada, *99*27# for Gujarati, *99*28# for Marathi, *99*29# for Bengali, *99*30# for Punjabi, *99*31 for Assamese, and *99*32# for Odia.
Aadhaar Enabled Payment System (AEPS)
The AEPS is a tool that can be used by 36 crore Aadhaar card holders that have linked their unique identification numbers to their respective bank accounts. UIDAI CEO Pandey has pegged that going ahead, an Aadhaar card can virtually become a users debit card. The payment system uses a simple finger-print reader, which is available at a retail price ranging from Rs 2,000 to Rs 4,000. It also requires a software that is supported by a bank, which is used by a merchant to take payments.
Pandey said that Aadhaar was working on a common platform that could be used to conduct transactions across banks. He added that 118 banks were on board with the AEPS. Even as a merchant would need a smartphone, a customer can make payments with just the Aadhaar card number and one of his two biometrics — finger-print, or iris scan.
Through this mobile application, the handset will be used for authenticating biometrics of customers making Aadhaar enabled payment. UIDAI will eventually increase its biometric authentication capacity to 40 crore. There are some third-party applications also in the market that have tied up with banks to use their access to Aadhaar database to enable the payment services. This method of payment is particularly being pushed by the government in the hinterlands of the country where access to mobile and data services is restricted to a very few. In AEPS, the operational part is to be dealt with by the merchant, and the customer only needs to have a bank account connected to an Aadhaar number. People can link their Aadhaar with their bank accounts and use AEPS for funds transfer, balance enquiry, cash deposits or withdrawals and inter-banking transactions.
Cards, Point of Sale
Different banks have different eligibility criteria for giving out PoS terminals, but the primary criteria is having an account in the bank, which will issue the machine. While the PoS machine is free of cost for the merchant, he or she is required to pay the bank a commission, or merchant discount rate, to the bank. The Reserve Bank of India has capped the MDR on debit card payment at 0.75 per cent of the transaction amount for value up to Rs 2,000 and one per cent for transaction amount for value above Rs 2,000. However, for the RuPay cards issued by government’s National Payments Corporation of India, the MDR was set at 0.45 per cent for transactions reaching up to Rs 2,000 and 0.65 per cent for transactions above Rs 2,000.
To accept payments on an electronic wallet, a merchant is required to self declare the business to the wallet issuer to accept payments beyond Rs 20,000 per month. Once a self-declaration is filled up, a merchant can have a maximum of Rs 50,000 per month in the wallet, which can be transferred to the bank account. The limit to transfer money from a wallet to the bank account is Rs 1,00,000 per month. However, if a Know Your Customer (KYC) is declared to the issuer, there would be no limit. Just like in case of the customer, the merchant would also need a smartphone with an internet connection to set up the account, and transfer the money to a bank account.
Unified Payments Interface
Merchants can also enroll with banks to collect payments via UPI, and just like a PoS machine, the merchant would require a current account with a bank to accept UPI payments. E-commerce merchants can also use software development kits prepared by some of the banks to enable UPI collection on their portals. At present, around 30 banks have joined the UPI platform, with around 20 UPI apps available on Android platform.
Unstructured Supplementary Service Data
While a complicated mode to accept payments when compared with electronic wallets, UPI, or PoS payments, this method allows merchants to accept payments from those without a smartphone as well. For a merchant the way to use the system remains the same, but will need to share the account details with a payee. This would raise certain privacy concerns about sharing account details with a customer.
Aadhaar Enabled Payment System
A merchant would need an initial investment of a smartphone and a finger-print scanner. There are several third-party apps as well as some native apps by banks that have access to the Aadhaar Payment Bridge. The prerequisite of having an account with a bank remains essential in this case as well.