Offline retail payments: Plugging the gap in the Indian Payments Fairytale

Over the last decade, India has witnessed a phenomenal rise in digital payment with home grown Fintechs driving unbelievable growth in acceptance of digital payment mechanisms.

While mobile penetration and access to internet has spurred the growth of digital payments in India, there are large, glaring gaps in the most basic of connectivity requirements in Rural India to ensure the final frontier is conquered to complete the fairy-tale i.e the Indian Payments Eco-system. Credible sources attribute a gap of almost 30% when it comes to Rural India’s lack of access to high-speed internet or poor connectivity on the whole. While there is a tremendous interest of policy makers to explore all the possibilities of cashless economy cash continues to remain king. It is the predominant form of transaction for Rural India.

Rural India is very much the epitome of what a cash driven economy is, with massive trust issues in anything other than cash is viewed with trepidation. Poor network connectivity at Merchant terminals seem to be one of the many stumbling blocks hampering the journey from cash to digital payments for rural India. It is going to be monumental task for fintechs to reach the underbanked, people with various types of disabilities, senior citizens, illiterate, and technology shy and medically unfit for movement and bridge the gap plaguing the digital payments eco-system.

The Policy makers and the Reserve Bank of India’s recent directives are set to counter this very challenge to ensure that the Cashless Economy we view as a necessity, will be soon set to become a reality. The Reserve Bank of India’s recent directives to financial institutions on offline payments including pilots is an indication that the central bank has finally decided to act upon an issue that has been plaguing the payment industry for long i.e. data connectivity.

The RBI has proposed to allow a pilot scheme for small value payments in offline mode with built-in features for safeguarding the interest of users, liability protection, etc. Under the pilot scheme, authorised Payment System Operators (PSOs) – banks and non-banks – will be able to provide offline payment solutions using cards, wallets or mobile devices for remote or proximity payments.

The country’s rural economy greatly contributes around 46% to the national income.
The rural population of India holds significant importance in ensuring the economic development of the country. It is the reason why many fintech companies are focusing on financial inclusion, especially in rural India.

It’s an unexplored huge market for Fintech organisations with over 5000 Tier IV towns and 6,38,000 plus villages. This invention in Fintech of Offline services will reduce a huge gap between the rural and urban markets in India.

The change in mode of payments from hard cash to other alternative modes such as UPI, internet banking, banking cards offered by various banks and fintech firms along with various value-added services like bills payment, recharge, insurance, prepaid recharges etc. have turned out to be a boon.

The average Indian who has travelled abroad is well aware that the internet speed and uptime in India, which has adopted 4G long back, is woefully lacking compared to even developing countries like Turkey, Malaysia, Indonesia etc. This when compared to the internet availability as it exists in urban areas of India. The situation in the vast rural areas of India can then well be imagined.

Telecom companies in India which are bleeding financially (with many gone bankrupt) will take even more time than normal situation to build capacity for addressing this issue as it takes both capital and effort to do it. In this situation the one single technology that can go a long way to address small ticket size payment (~ USD 30) is offline payment system.

It is not that India has not adopted this mode of payment but it has been restricted to special use cases of transit ticketing and toll payment. Both cases are a success thanks to the effort of the Government and industry to come out with specifications and standards that promoted not only the payment process but also interoperability. National common mobility card (NCMC) and National Electronic Toll Collection (NETC) are standards and specifications that has enabled this.
Post the publication of these specifications, Fintech companies in India have quickly adopted the same and built IT applications conforming to these. Currently there are several Indian Fin tech companies in association with banks that have built products and systems which has enabled mass migration to contactless payments in transit and toll.
In Transit, it is the metro rail organisations that have implemented offline payments initially based on closed loop and proprietary solutions and now migrating to open loop bank cards. Other modes of public transport like buses, trams, ferries etc. are also falling in suit. The overall ticket value size of transit use case is around USD 100 million on a conservative estimate. In toll payments on India’s national highways, adoption of offline payment using open specification FasTag brand is almost 100% which is currently averaging USD — per annum. More use cases of offline payment like parking, general retail etc. are emerging and soon India could be one of largest offline payment countries in the world based on demographics and need.
The Indian government is working on incorporating digital payments as universally accepted models. However, the lack of comfort with technology, not understanding smartphone features and poor network are restricting digital transactions in rural India.
But many fintech companies are constantly working to make banking and digital payment easy and swift for the people in Rual India through retailers and shopkeepers which is known as Assisted Payment and Financial Services.
In India, National Payments Corporation of India (NPCI), has made a mark with its innovative UPI platform, which is today a much-admired initiative globally.
With tech-driven innovations focusing on breaking the traditional barriers of the rural-urban divide, reduction in costs, India is on the cusp of a major shift to financial inclusion.
Fintech companies with their nimbleness, agility and skilled resources are powering offline payments which can exist without depending on high internet availability compared to online payment seen in general retail and high value payment. In fact as per the latest trend a few Fintech companies in India have built systems and processes that can manage both offline and online payments with fungibility of a single balance in the backend. This convergence of these two modes of payments is a powerful proposition from a convenience point of view for citizens and cost reduction possibilities for payment instrument issuers and acquirers. In fact, the payment schemes & network in India like NPCI, VISA and Mastercard too have also identified this huge need and is working with Fintech companies in creating the payment eco system for offline payments.
The IT system being built by Fintech companies incorporates following important aspects from technology and process perspectives:
Seamless switching between offline and online payments based on internet availability. Thus, the customer is insulated from the hassles of poor internet connectivity and at times availability
System driven risk mitigation measures to bring down risks for payment issuers and acquirers.
Use the power of smart phones and tablets for encryption, offline processing etc. thus making the whole thing an ubiquitous proposition as smart mobile phones are now essential part of day to day life of citizens.
To sum up, the FinTechs in India with their innovative ability and entrepreneurship have contributed a lot by helping the country surmount the reality of poor internet penetration, bandwidth issue & availability. This development is very beneficial to the Govt. and industry initiatives of financial inclusion in India’s vast rural areas, last mile delivery of fiscal benefits, banking and payment for goods and services.
India Govt. is on the verge of tendering for 5G telecom implementation in India. While 5G is a disruption in network technology, without the backbone of internet, it can be an overkill. Till then thanks to the Fin tech companies encouraged by Govt.., & industry, India seems to have found a workaround.
This may very well be the fillip needed to conquer the challenge around the lack of digital payments in rural India and remove all major impediment in the adoption of digital payments.

The authored article is written by Mr Ambarish Parekh and shared with Prittle Prattle News exclusively.

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