India going cashless story could have a happier ending in Modi's 2nd term

India going cashless will be as much a story of Prime Minister Narendra Modi's second term as it was of his first.

Business Standard : India aims to curb cash – but this time it wants to do it properly.

A cashless society wasn’t the original goal of the country’s draconian currency ban in November 2016. But when an acute shortage of banknotes gave a fillip to digital wallets, that purpose was added as an afterthought to justify an act of farcical state overreach.

The real innovation in mobile payments in India began a few months prior to the cash ban. It’s called a unified payment interface, or UPI. The name is clunky, but the idea is simple. One smartphone owner who’s a customer of Bank A can request a payment from, or initiate a payment to, another owner who has an account with Bank B. Neither party needs to know anything more than each other’s mobile number or a virtual ID. They don’t even need to use the same mobile app to transact.

In this, India was ahead of even Asian money centers like Singapore and Hong Kong.

With more than 140 Indian banks sharing the interface, and Alphabet Inc.’s Google and Facebook Inc.’s WhatsApp offering instantaneous payment services on it, UPI has become a keenly watched experiment. By the looks of it, things are going well: From nothing to 800 million monthly transactions in less than three years, India’s UPI has taken off. Growing smartphone use and crashing data costs have helped immensely.

Now a committee set up by the central bank under Nandan Nilekani, the technology entrepreneur best known for creating the world’s largest repository of citizens’ biometric data, wants to expand the platform to foreign-currency remittances by the non-resident Indian diaspora as well as to settle residents’ payments when they travel overseas. “This is like Chinese users being able to use WeChat in many jurisdictions,” Nilekani’s panel said in its report released this week.

Assuming the suggestion gets implemented, India will have its own WeChat Pay. But since it’s an open-source technology, there won’t be one Tencent Holdings Ltd. owning it. Google and WhatsApp will fight for market share. So will PhonePe, now owned by Walmart Inc. as well as new entrant Amazon Pay, which hasn’t made much of a dent globally into PayPal’s dominance of e-commerce. Indian banks that run their own UPI services, as well as Indian tycoon Mukesh Ambani’s JioMoney, will be in the race, together with Paytm, a popular digital wallet.

Who will succeed in this crowded field? News reports give a lead to Google, though that could change as people-to-merchant payments start to dominate people-to-people transactions.

Apple shelving UPI shows how foreign giants trip over Indian regulations

The first of the issues is the data localisation recommended by RBI; then there are Justice Srikrishna panel's draft privacy Bill, health ministry guidelines, and even the national e-commerce policy.

It is an oft-repeated, well known story, only the actors keep changing. For more than a year, Facebook-owned instant messaging giant WhatsApp has been looking to foray into India’s thriving digital payments industry but has moved little beyond a beta launch. Now, it is the $1-trillion US tech giant Apple that cannot find it in itself to launch a proprietary payments product using the country’s flagship Unified Payments Interface (UPI), suggest reports.

Apple’s move to shelve its UPI plan comes at a time when Google has placed massive bets on the Indian payments ecosystem, especially with its Google Tez app, recently rebranded to Google Pay, which allows people to pay, collect and request payments using UPI. However, Google isn’t too sure of its own future, either. The company is known to be assessing its plans in India, considering strict data localisation norms.

If the UPI values are rising at a breakneck speed each month – they have eclipsed credit card spends in the country – what could possibly be the reason for the three big giants in India’s digital story remaining largely out of the race? Regulations!

The first of the lot is data localisation as recommended by the Reserve Bank of India. Then there are Justice Srikrishna panel’s draft privacy Bill, guidelines of the health ministry, and even the national e-commerce policy. Data localisation simply means storing specific data related to individuals inside the geographic boundaries of the country. However, to different departments it means different things, and it can get confusing for companies.

For instance, earlier this year, RBI issued its master directions and gave companies six months to move to the country all payments and financial data related to Indian cities. RBI also used the phrase “only in India”, implying none of this data could be taken outside of the country for processing.

India’s payment industry has traditionally depended on giants like Mastercard, Visa and American Express, which brought a plastic money boom to the country. These three companies are known to process data at their master data centres outside India, so setting up new data centres just to satisfy RBI’s conditions did not go down too well with these players....Read More

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