Internet has made the world more connected. Sharing your life is now de rigeur. It is a world where ideas are communicated at the speed of thought, if not faster. All of us may have many friends and followers in the virtual world, but th-ere is one that, if it had a mind of its own, would not hesitate even for a moment before declaring the internet as an arch-nemesis. Paper.
When all other modes of communication from the pre-internet era are on a decline, can paper, arguably the oldest surface for communication, have a different fate?
Email and chat are replacing letters. This article, too, was “written” on a “cloud” housed in servers in a distant land over an internet connection (Google docs). There are chances that some readers would read this piece on their computer screens and not in its traditional form. If paper is losing its relevance in communication, can other forms of paper, say currency, be unscathed?
Is it possible to use the latest advances in technology and all its attendant benefits to move from cash to cashless transactions? Existing financial instruments, such as debit and credit cards have no doubt played a valuable role in making our wallets lighter. They are extremely convenient, they reduce the need, if not completely eliminate, to carry large amounts of cash on our persons at all times. But can this idea be extended?
Specifically, can the ambit of transactions currently done thr-ough credit and debt cards be extended to all possible financial tra-nsactions ranging from buying a car to paying the neighbourhood kirana store for groceries? At the risk of indulging in fantasies, can we, thr-ough the use of technology, make physical infrastructure of the bank itself redundant? This article looks at technical issues facing cashless banking.
These questions have achieved a great urgency, even in India. People who live in cities are usually spoilt for choices when it comes to banking. But as the distance increases from the nearest urban agglomeration, the options to invest your money decline.
So much so that only about 45 per cent of the population is banked and hence has access to modern financial instruments. This picture, for any country that sees itself as a new economic super-power, would indeed be bleak.
The silver lining to this cloud is the communications industry. The second-largest market for cellphones in the world (next only to China) and largest in terms of new subscriber additions, India also has the third-highest number of internet users in the world. From 851.90 million mobile subscribers in June 2009, the number of subscribers is slated to go up to 1.159 billion by 2013.
Banks and other players in the industry have not been ignorant of this and are increasingly beginning to realise that the easiest way to reach customers, existing and potential, is when they are on the move, or in places where they can always be found, through devices that they always carry — the cellphone and the internet.Credit is one of the oldest financial instruments available to mankind. Though its existence has been enshrined by economists and vilified by Shakespeare, its significance as the oil that greases the wheels of any business and economy is not lost on anybody.
Though essential for conducting business, a revolution was ushered in with the introduction of credit and debit instruments for personal finance. The advantages that these cards confer are many. Money is available instantaneously for emergencies.
It offers greater security, such as signing the statements yourself, CVV codes, instant SMS alerts sent to your mobile phones on any transactions made and 24X7 helplines to help you deal with any situation pertaining to the cards. Then there is also the convenience of not having to carry a wallet loaded with cash “just in case”.
The popularity of credit and debit cards is reflected in the fact that these cards are now viewed as standard offerings by all banks and demanded by customers. A visit to any bank on any working day of the week sees scores of people waiting in seemingly endless queues waiting for their turn to deposit cash and cheques of small denominations.
This underscores the importance that banks, nationalised and private, must, and in most cases do, attach to information technology and paperless transactions as a means of increasing productivity, both, for the bank as well as the customer.
SMS banking allows users to perform basic operations such as balance information and statement viewing by sending instructions over the SMS with a unique user ID and password.
For more complex instructions, all one needs is a phone with a bluetooth connection. After downloading the application, one can use it to access more services such as utility bill payments and mobile phone recharge among others. These innovative services have not only reduced the amount of work that needs to be done by the banks, but also made physical handling of money largely redundant.
However, the most frequent transactions are still carried out in cash. To service this market, Airtel has introduced a service called Airtel Money. Given the kind of connected world we live now, more often than not, we have money (read balance) in our mobile phones but not in our wallets. Airtel was granted a licence by the Reserve Bank of India to operate a “semi-closed wallet”.
With this service, the customer can operate his/her mobile phone as a portable ATM machine and use it to pay bills, buy tickets and shop at all partner merchants, wh-ich include not only big name merchants but also small kirana stores.
The user needs to fill the requisite KYC norms, generate MPIN and load cash just like one rech-arges a mobile phone. The user is now ready to transact by sending commands from his/her mobile phone.
If the above technology sounds impressive, then there is more just waiting in the wings. NFC, or near-field communications is already being deployed in most of the high-end smartphones. NFC allows smartphones and other communication devices to connect with each other wirelessly when placed in very close contact with each other (usually a few centimetres).
It is being increasingly looked at as a potential replacement for the credit card. A customer loads his/ her credit card information on the phone. Alternatively, one may also have a pre-paid card loaded with money. At a participating retailer, all one needs to do is walk up to the NFC Reader and wave the cellphone in front of it. Voila! Cash is transferred, payments are made and the customer moves on.
A number of big-name retailers such as CVS have partnered with Google (Wallet is the name of the service) and Mastercard (PayPass) for trials. It is available in a number of countries around the world and has seen wide acceptance from people in South-East Asia.
Upcoming standards for NFC will ensure that the transactions are secure and impervious to any hacking attempts. Certain transactions also require the user to enter a four-digit pin number, which increases security. This technology, implemented through chips embedded in the phone is already present in smartphones made by a number of manufacturers such as Research in Motion, Nokia and Samsung.
The future, in a few ways is being played out right now, though in very small but measured steps. A bank in the US that goes by the name of the Bank of Internet is pioneering the concept of a bank sans tellers, ATMs, even branches and buildings.
Based entirely on the internet, this bank offers the complete spectrum of services like any other bank and by providing services only over the internet, explicitly encourages customers to use paperless cash and cashless offerings. The costs of maintaining an account is very low since there are no overheads for maintaining facilities.
Other such banks have been operating in European countries since the 90s and some have reported customer satisfaction of 82 per cent. There are many disadvantages of the current system, especially in a country like India with people living in far-flung areas and in over-crowded cities. On the one hand, we have over-crowded cities with plenty of banking options, crowded yet not enough that they are able to serve the urban poor.
On the other hand, there is the rural population, where banks have feared to tread on account of notions of low demand and high maintenance costs. With the introduction of UID, this problem of too many customers is all set to increase, with reports that the UID is going to be enough to open a basic no-frills account.
It will bring into the banking fold hundreds of millions of people, mostly poor whose needs are small and do not fit traditional banker definitions such as minimum balance. Increasing the stress on existing institutions.
It is imperative therefore, that banks increasingly adopt new technologies that automate most functions and free up resources to service those who have been lacking financial inclusion.
There are many advantages of cashless transactions. The recent protests by Anna Hazare and the unprecedented wave of anti-corruption protests that rocked the nation has brought the spotlight on the murky world of black or unaccounted money.
It is no secret that the black money market in India is a significant portion of the economy. A lot of this money is also believed to fund terrorist activities in the country.
The use of credit/debit and other such electronic (cashless) forms of money leaves paper trails that are hard to fake or duplicate. These trails are used as financial weapons by countries such as the US when it acts against terrorist organisations’ financial sources.
There are, of course, claims by a number of organisations that such records can be misused by the government that are countered by people who believe that those who do right should not be afraid.
In conclusion, the use of cashless or electronic forms of money holds great promise in extending bank’s reach to the masses — those already served and about to be served.
Easy availability of credit and financial inclusion are the hallmarks of any developed economy. With the adoption of some of the means described above, India’s pace in this direction can be accelerated.
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Note : Thanks to mydigitalfc.com
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