Sunday, December 4, 2016

If we are to go cash-light…

Credit: Street art in Fort Kochi by GuessWho!
An India that uses no cash; as ideas go that’s pretty seductive. And viewed from the corridors of power, it’s probably even more captivating given the possible rewards, especially the political and reputational capital that will accrue to whoever helms the desertion of cash.
But the thing is, cash has evolved over centuries into an almost perfect instrument for the exchange of goods and services because it is instantly valuable, widely accepted and convenient. And that’s the sort of utility it would be injudicious to discount while imagining a cashless world.
The other thing to remember is that grand ideas often ignore or gloss over the devils that lurk in the details. And if experience is anything to go by, we in India appear to have a congenital ability to believe that the details will take care of themselves. Mostly though, they don’t.
Given how many Indias exist, sometimes in parallel, sometimes intersecting, it would be imprudent to embark on a single sweeping move to a cashless economy. Instead, adopting a strategy of aggregation of marginal gains through small but continuous improvements could get us there just as quickly, but without the trauma and uncertainty that will obviously accompany a forced move.
It’s also probably premature to talk about a cashless India at this moment, given how many of the more evolved economies, with fewer people, still use a fair bit of cash. Instead, it would be more sensible to aim for — at least in the medium term — a cash-light India where cashless transactions overtake ones that use cash. Getting there will, itself, be a pretty significant accomplishment.
The government has created a committee to look at how India can go cashless, and that’s a welcome step. But as someone who uses both cash and e-payment options, what concerns me is that a move to a cashless economy or even a cash-light one should benefit all Indians. And if we are to make that transition to e-payment relatively painless we may want to address some of these issues.  

Scrap minimum limits and transaction charges
Very often in India, you have to either spend a minimum amount to use a debit or credit card or pay a transaction charge. And sometimes, no matter how much you spend, you still have to pay a transaction charge if you use a card.
If we want e-payments to dominate, these constraints on electronic transactions have to go, permanently. Of course banks and card and e-wallet companies need to earn their bread. So perhaps some of the bright people in Delhi’s North Block or at the RBI can figure out a way to scrap transaction charges on e-payments while also ensuring that the companies’ revenues aren’t hit; government subsidies or tax breaks, perhaps? And while they’re at it, could they look at banks removing transaction charges on online and offline bank transfers for non-premium customers too?

Creating the infrastructure for e-payments 
Some months ago, I was settling a large-ish bill at a hotel in a slightly remote location. But my card just wouldn’t work despite being swiped through three different machines from three different banks. Finally, a hotel staffer gave the machine with my card in it a hard whack and voila, the transaction went through. I’m not sure if the problem was with my card, the hotel’s card machines or its Internet connection. But I shudder to think of what would have happened if I’d found myself in a similar situation over the past few weeks and whacking the card reader hadn’t worked.
While the use of e-payments has steadily grown over the past few years, it’s clear that the infrastructure required to ensure these systems function flawlessly hasn’t grown as quickly. And over the past few weeks, e-payments have shot up but anecdotal evidence indicates that incidents of card or e-wallet failures have also increased possibly because of the high levels of stress on the networks. In several instances, outlets that claim to accept e-wallets weren’t actually ready to do so.
Another aspect of going cashless is the need to address quality levels in our banking and financial infrastructure. Given how iffy e-payments often are, we need to have laws that prescribe and enforce minimum standards for all technology, material and other elements — cards, electronic chips, card machines, network gear, Internet connections and so on — used in our banking and financial infrastructure.
Yes, the RBI does have guidelines on certain aspects of electronic transactions, but it’s unclear if they are legally binding and what happens if banks don’t follow them. And yes, India’s Information Technology Act has some general provisions that can be applied to electronic financial transactions. But what we need is a law that specifically and comprehensively covers issues related to electronic financial and banking transactions, including oversight, processes and systems, technology standards and equipment and material standards.

Better consumer education
A few months ago, several people in Kerala were tricked into parting with their debit card information, including the PIN, to someone who claimed to be calling from the victims’ bank. In each instance, the victim was defrauded of several thousand rupees. What was disturbing about these incidents was that all those who were defrauded were mid-level government officials who should have known better than to reveal sensitive financial and personal information to an unknown caller.
At first glance this seems to be an instance of people being careless with personal information, but that’s not the entire picture. For instance, I often get a call, ostensibly from my bank, a few minutes after I have used my card. The caller usually wants me to confirm using the card and then insists I authenticate my identity by revealing more personal information — just the sort of thing banks warn customers against doing. Occasionally, I’m even told the transaction will be cancelled if I do not confirm my identity by answering the questions put to me.
It’s in these spaces where banking and technology intersect that people, including otherwise careful people, seem to throw caution to the winds possibly driven by the fear of losing access to their money. And given that many of us are still not entirely comfortable with technology, though we may use it, there’s room for things to go awry.
The RBI and individual banks frequently highlight the need for exercising caution, especially while revealing personal information or using debit cards or conducting online transactions. But obviously, this isn’t enough. While there’s certainly an element of individual responsibility involved, it’s also important to invest in much more effective and widespread initiatives to promote awareness of safe banking practices.

Information security and privacy protection
In India, we tend to be very blasé about privacy. The general approach seems to be ‘what’s the big deal’, which is reflected in the existing patchwork of guidelines, rules and laws on privacy and data protection. We’ve even had public figures quip about privacy being dead since people use social media, without realising that using social media involves an element of choice that doesn’t really exist when it comes to banking and similar transactions.
Then, there’s the issue of data security, which has become particularly urgent over the past few months after a series of fraudulent transactions using stolen debit card information. There’s so much of opacity around some of these incidents that it isn’t yet publicly clear just where and how the breaches occurred and what their impact is.
Given that researchers at Newcastle University seem to have hacked Visa credit cards in just 6 seconds can’t help wonder how secure all these e-transactions and digital transactions really are. And I really don’t think biometric protection offers any sustainable answers either.
What all this highlights is that it’s time for us to get serious about protecting personal financial information, especially if we want to promote electronic transactions. Of course there are certain circumstances under which financial data will have to be accessed and shared; credit reports, for instance. So what we need is to spell out very clearly who can access an individual’s personal financial data, for what, to what extent, what such data can be used for and what happens if there is a security breach. And this will be possible only if we have coherent and comprehensive privacy and data protection laws that match the best in the world.

Ensuring inclusive banking
Quite a bit has been done over the past several years to reach out to those on the margins and improve financial inclusion. But for many, banking is still extremely unfamiliar territory. So any move towards a cashless economy needs to be preceded by meaningful efforts to help people on the margins get comfortable with modern banking and help them learn how to use banking and e-payment technology safely. In addition, banking technology infrastructure across the country needs to be bolstered and those who work in banks and financial institutions need to be trained to be more empathetic and inclusive while attending to less-affluent customers.

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