By Prashansa Srivastava
In a boost to the Modi governments digitisation drive, digital payments at toll booths have risen to 8.2 million in June; with 360 of the 375 toll plazas now fully equipped with electronic toll collection capability. Dispelling fears of a slump in digital payments as cash begins to flow back into the system, A.P. Hota, Managing Director of National Payments Corporation of India (NPCI), has said that the total number of tags issued by banks stand at 5.3 lakh and daily transactions were at a high of 3 lakh on an average.
A ‘tap and go’ toll system
Toll collection using tags leads are a step to promote digital penetration and decrease frequent cash transactions. They are convenient to use, as they automatically deduction toll charges for drivers. The tag employs radio-frequency identification (RFID) technology and is affixed on the vehicle’s windscreen once the tag account is active. The RFID tags are distributed by various tag issuing banks and are connected either to a bank account or a digital wallet from where the toll amount gets auto debited once the vehicle crosses the booth.
The concept, referred to as a ‘tap and go’ system, was introduced on June 17th and is seen as a pillar for digital transport payments. The coordinated efforts of NPCI, the Reserve Bank of India, commercial banks, and the government have led to the persistent growth in digital toll transactions. The task for the National Payments Corporation of India (NPCI) in these payment systems is to design technical specifications for the card which will encourage functionality and interoperability between banks in due course. In terms of functionality, this system is an improvement over Paywave of Visa and MPass of MasterCard.
The government is hoping that these transactions will be a vital part of reaching the ambitious target of 25 billion digital transactions for the whole financial year.
Move to a cashless economy
Moving towards a cashless digital economy was one of the objectives behind Prime Minister Narendra Modis demonetization decision, which swept away 86 percent of the total currency in circulation. Since then, there has been a strong growth in digital payments and transactions in both volume and value across wallets, cards, and interbank transfers. Card transactions at the point of sale (PoS) terminals at merchant locations have also risen as more people start using their debit cards for payments rather than for withdrawing cash at ATMs. Electronic transactions such as these are a step to eradicating the larger problem of black money and to improving overall transparency.
The government has been strongly promoting smartphone-based transactions through the Unified Payments Interface (UPI) and the Bharat Interface for Money (BHIM). Both use the Immediate Payment Service (IMPS) network of the NPCI. This system carries peer-to-peer requests and powers multiple bank accounts into a single mobile application of any participating bank, merging several banking features. It has gained ground by becoming one of the most inexpensive methods of instant transfer.
Subsequent slump
This spike in digital transactions was most evident in the months immediately following demonetization, with people selecting alternative channels in the wake of the cash crunch. However, the level of usage of these channels has waned in the subsequent months. The number of people using alternate channel has overall declined, with only a small proportion retaining the non-cash instruments. Trends in digital transactions have begun to stabilise, just on the lower side of what the government had hoped. A clearer picture will emerge only when the cash situation returns to completely normal and small businesses recover fully from the note ban’s impact.
The digital divide
There remain a number of difficult tasks ahead in Indias digital journey. Mobile connectivity and seamless internet availability remain a problem in rural India. Digital financial transactions come with their own issues of cost, convenience and confidence. The glaring digital divide in India could lead to further decline in acceptance of digital payments. Questions of privacy and compromise of sensitive financial data remain, with no effective action from the government to safeguard data. In the midst of going cashless, casting a blind eye to the security aspect of digital payments could be detrimental. All these problems are an impediment to the expansion of digital transactions throughout the country.
There also remain issues with the ‘tap and go’ toll both technology specifically. Users of the tag are primarily commercial fleet vehicle and truck operators, who face repeat transactions at multiple booths. There is no incentive as such for the general public to make the switch from cash and deal with the hassle of RFID tags. The value of digital micro-payments made by noncommercial vehicles will not increase in volume drastically at toll booths since they need small change and are unwilling to deal with a new system. This system has thereby benefited merchants more than consumers.
The question remains whether the governments determined digital push will keep accruing benefits or will inadequate financial infrastructure thwart all eventual efforts to go cashless.
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