Why Budget 2018 Should Focus On Digital Transactions

India is one of the fastest growing economies of the world today. We have seen strong government drive towards financial inclusion, which continues to benefit from unprecedented advancement in digitization and technology in recent years.  We have come a long way in the last five years. Today we have over 30 crore Jan Dhan accounts and these are set to increase further. The use of Aadhaar-linked services is increasing credit penetration beyond the metro cities. The demonetization initiative has brought about a steep jump in the volume of digital transactions.

However, the digital payments ecosystem needs support for increasing its reach and usage. A specific support area would be Point of Sale  (POS) machines, which is perhaps the biggest channel today, to compete against cash transactions.

Currently there are only about 30 lakh POS devices undertaking close to 39 crores of transactions every month. We need to multiply the number of POS devices to achieve the scale that our country needs. However, there has been a gradual decrease in merchant discount rate (MDRs) in recent times. Some budgetary incentive in this space would go a long way in promoting cashless transactions.
At the same time, the Unified Payments Interface (UPI) system could emerge as a cheaper and more scalable alternative to POS machines, because of the rising penetration of smartphones and internet connectivity. Budget 2018 can possibly provide the much needed incentives such as cashbacks for both customers and merchants.

The advent of paperless processes is going to be another key driver. Technologies such as e-KYC, e-Sign and e-Nach will make it possible to reach millions who do not have easy access to banking. To reap the full benefits of such technology, more players need to be encouraged to adopt these services, which currently come with a high entry barrier in terms of set-up investment and cost of compliance. This area is expected to receive its due share of incentives, probably through ways such as subsidies or lower duties on critical equipment and devices.

It would also be heartening to see an allocation towards digital awareness programs at a national scale. This will help educate millions of consumers and build the trust and confidence, for them to embrace banking and financial services of the modern day.

(Rajashree Nambiar is CEO, India Infoline Finance Ltd.)

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