How to quickly replace cash with digital means?

Sameer Sharma
15 Mar 2017

The Government’s plan to boost digital payments is by deploying 10 lakh new Point of Sale (PoS) devices (for card deals) and Aadhar Pay PoS machines. However, the RBI’s data for digital transactions showed a decline in mid-January, compared to a month earlier. Overall, the number of digital transactions (debit cards, credit cards, electronic transfers, e-wallets, mobile banking) also showed a decline in January, as compared to December. The main hurdle to digital use is a mix of physical and psychological distance. On this, elsewhere (ET 12 Dec 2012) I had written about how mobiles can be used to deliver cash directly to beneficiaries. I had also argued that the details of the Aadhar card could be stored in the mobile phones and used to authenticate the individual. In another piece (ET 13 March 2010) I had written on the potential of leveraging informal social networks through  digitalization.

There is a status quo bias operating in human beings. Understanding why one behaviour becomes a habit while another equally important one struggles to sustain itself in the unique Indian cultural context will be useful to spread digitalization to all. The challenge, therefore, is to use habit loops that provide an existing high to people using cash.

In India one common habit is mobile usage. The opportunity, therefore, is to build on the familiarity, ease-of-use and availability of mobile phones with the people. As we know the habit of relying on cash transactions is also based on similar characteristics. If, we can marry mobiles with cash in a way that becomes a part of the existing habits, the potenital of acceptance by people will be maximum. In other words, cash transactions should become as easy and natural as talking, texting or using the camera on mobile phones.

There are some examples from other countries. Launched in 2007, M-Pesa has 7 million users and first became popular for young, male migrants to send money back to their families and is now used to pay for school fees and taxi charges. Nearly, $ 2m is transferred though the system every day; moreover, incomes of Kenyans using M-Pesa have increased by 5- 30 percent since they started using mobile banking. Experience of Kenya and Tanzania has demonstrated several advantages. First, cash travels as fast as text messages. Second, mobile banking becomes the first step to inclusion in the formal financial sector, and, finally, cash in mobile banks is safer than other forms of storing wealth (e.g. gold, cattle).

The nonprofit GiveDirectly delivers cash to the last mile and rides on the mobile-banking model of the M-Pesa program. Paul Niehaus and Michael Faye started GiveDirectly in 2008 while they were doing scholarly work in Harvard. During their graduate research they had found that direct cash transfer was a particularly effective method to alleviate poverty. Unable to find nonprofits practicing direct cash transfer, they launched their own.

The clear message is that digitalization can be rapidly rolled out if mobile phone and a bank come together to create a walking bank account, providing anywhere, anytime access to cash for users (similar to notes). Here, the sim card of the mobile works as a debit card and can be recharged or used to draw money. Mobile companies have a large number of representatives based in cities and villages who can be used to deposit cash in sim cards (in addition to recharging) as well as disburse cash upto the amount stored in the sim card. This model will lead to maximum digitalization of cash transactions in the shortest possible time period.

(Author is a civil servant. Views are personal)


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