Indian Payment Ecosystem – Dark Side

By Ritesh Kumar

In any country around the globe are majorly three industries which shapes the technology backbone and infrastructure (banking, telecom, and retail), but in the country like India the role played by all these industries are significant with sheer need of value and volume. Amidst the hype of digitizing lives, we haven’t been attentive to the sacrifices that society (Consumer & Customer) must make to step into the digital era. There are very important drawbacks of the digital revolution to consider and act upon before we completely move away from the conventional way of doing things. Technology by itself will not deliver a competitive advantage; what banks, telecom and retail entities do … Lacking a clear strategic rationale, their digital initiatives end up producing … Retail banking leaders will need to adjust to this change in basic assumptions by tackling certain deficiencies in our ecosystem.

1.       Over Competitive Market and/or Price Conflict: In India, there were majorly 4-6 payments software and systems service providers, out of which 2-3 has gone out of business and become redundant, these were all Indian companies. Numbers don’t lie and this is precisely what they show: These 4-6 entities had a 90% market share. But now most of them do not exist. Reason may attribute for various things, but in my opinion are Competitive Market and/or Price Conflict. Banks adopt lowest bid or reverse auction where it is lowest and quality product. But this is not doing any good to the ecosystem. One Classic example of a PSU Bank, they did RFP for one of the most talked about innovative product launched recently, bank paid X for the core platform to the Indian entity but paid X*7 to their partner; just for interface. This price war is dishing away Indian companies from the landscape where they might have done innovation and enhancement into their product. PSU Banks has also still not realized the potential of partnership relationship, as they are critical for their growth. But they are still in Customer – Vendor mode, thanks to the history the dynasty rule.

2.     Imbalanced labour market: In last few decades when we’re transforming through a digital revolution, the young workforce has faced massive unemployment and remained unskilled to move to next level in all regions. Many thinks that a young tech-savvy workforce is the one to benefit the most from the digital world, but that’s the misconception. We can’t blame everything on digital transformation. Outsourcing has always been affecting the domestic workforce in a negative way. Cheaper services in the developing world incentivize corporations to move parts of costly operations abroad. There are two important components to domestic structural unemployment to keep in mind – AI and cloud-computing. The ability to perform technology development in the cloud has created a great opportunity to hire a cheaper foreign workforce without significant efficiency losses.

3.      Say ‘goodbye’ to personal privacy: It shouldn’t be a surprise for anyone that the term ‘privacy’ will vanish in the nearest future. What’s even worse, there is no choice about it as it is an irreversible process of destroying the personal digital space. Most of us believe we have the right to decide what personal information we divulge, to whom, and for what purpose. Services like Instagram, Twitter, Facebook, contain so much private and granulated information about personal lives, that nothing can be hidden anymore. Similarly, the emergence of UIDAI, NPCI, CIBIL, etc. will enable Banks to have access the details of what/where done by the individuals, like empowered people to request the deletion of the linking to any personal information in Google’s search engine. But the important thing here is not to act on the outcomes, but to give control over personal data in the first place. Any personal information provided to the companies must be irrevocable by the owner of that information. Similarly, regulator needs to consider consumer side of the privacy.

4.     Financial Inclusion: While we have been advocates of financial inclusion fostered by Banks, Payments Bank, Telecom, Retail and FinTech, there is a certain controversy in that idea. Even though it is widely believed that, in the last few years, financial technology is democratizing financial services and improving the financial situation for the underprivileged and general population, it would be expected that the digital revolution plugs more people into the financial world and provides more opportunities for prosperity, but the situation is actually reversed. Social inclusion is also quite a debatable topic when it comes to the digital revolution. Yes, digitization can plug people into the world and create a connected global society. But if someone doesn’t have access to digitized information, what difference does it make? How do they get money to enrich their livelihood, is direct benefit transfer is the solution? All of us looking for solutions and answers to the most pertinent problem. This will be also shape the future of the way people make and take payments in the country.

5.     Political Redefinition in digital age: Even political systems are beginning to get affected by digitization. We have seen an example of 2014 general elections and many state elections of our recent times, digital political systems could facilitate participation and inclusion, in the developing states it is quite debatable that digital systems can improve the situation unless there is an infrastructure built for it. Unless the whole population has access to electronic voting, democracy will tend to be ruled by the part of the population that has access. It can be manipulated, is it going to be transparent will be key for vibrant democracy. In India post demonetization, we can see the furry of digital offering provided to the consumer and merchants. But that lacks clarity, smart mobile plus additional bio-metric device. Integrated would have been better. Various kinds of like PayTM, SBI Buddy, Pockets, NPCI UPI for various Banks, for consumer it is very complicated. The urban population is using these, just think about rural masses.

6.     Regulatory Alignment: For a better and synchronized which is convenient and friendly to the consumer/merchants, Regulator, Government, and Banks needs to have standard framework which can be enabler of the digital landscape. Many times, they get into shoes of processor, service provider that itself has created confusion amongst the industry players. Needs to infuse sense of security for long term sustainable strategy to make India truly digital. All needs to work in tandem, rather than working in silos.

Conclusion: Those are not the only drawbacks of the increasingly digitizing Indian payments landscape, of course. India’s digital payments will be worth $500 billion by 2020 and will account for 15% of the country’s GDP, as per a study put together by Google and Boston Consulting Group. With time, other problems may emerge and sharpen. However, it would be wrong to say that we should inhibit the transformation as there are certainly positive trends as well. The important thing to keep in mind, while sharing a post on LinkedIn for example, is that technology itself and its capacity is useless and even dangerous if it is not channeled to serve the goal of improving a human life. If the technology is deepening social and wealth inequality, erasing privacy and exposing massive populations to unemployment, is it a good cause to work for?

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