"It took a lot of time for the US in terms of penetration and comfort to accept other modes of payment than cash. This switchover takes time... In the US, it was 20-25 year journey."
- Jack Ringquist, global leader, consumer products, Deloitte
The process of 'dematerialization' of money started long ago in India. Even though most of us think of the Indian government's demonetization drive of November 2016 when we think of the 'disappearance of cash', we have been moving away from cash for decades. Bank accounts, the introduction of credit cards, dematerialization of shares, direct bank transfers – these are all milestones that mark our gradual distancing from heavy use of cash.
And then, digital technology came our way. An easy way to understand what digital technology is doing to our money and assets is to think of it as an 'aggregator' and an 'accelerator'. Where we earlier managed separate account statements for our many bank accounts, we now have apps that show us all our accounts on one screen. Where we would earlier need to submit request forms for NEFTs or RTGS, we are now able to transfer money directly from our phones. Where we had to reach out to and request investment managers and clearing companies to know our holdings and balances, we now have consolidated updates, in real time, in the palm of our hands.
Ten years ago, when iFAST first came to India, it was with a digital investment platform that promised educated investors self-service, transparency and straightforward processes in mutual fund investing. These are, in fact, promises of digital technology itself. In this two-part series, we present a quick round up of all things digital in Indian personal finance, to help our investors make the most of the new facilities available to them today.
In the first part of this series, we look at money management apps, including banking, e-wallets and payment interfaces.
Most of us have probably heard of or are already using mobile banking apps issued by our banks. Almost every bank has an official banking app for basic transactions today, which is useful if your primary account is with that bank, and you use their multiple products. Almost all your banking requirements are taken care of from within the app itself: from fund transfer (inter-bank and intra-bank), transaction history analysis, opening and closing deposit accounts, balance enquiry, ordering a cheque book, update change of address and setting up a standard instruction - all without your needing to submit any request forms and most often, without any waiting period. Not only are banking apps extremely user friendly, they empower users with complete transparency and control over their funds.
Apart from bank-specific apps, we also have account aggregator apps that allow you to link your accounts from multiple banks into one app. Do note however, that these apps only allow you to consolidate information from your various accounts – you cannot transact from account aggregator apps. The best way to choose your banking app(s) is to first define your banking needs and then find the app(s) to meet those needs. While choosing an app make sure that it performs most functions that you normally go to a bank for, supports local languages of your choice, and enables fund transfers to accounts across a large network of banks.
These are the digital counterparts of the real-world wallet, and essentially allow you to store funds and then use them for transactions over a period of time. Online businesses like MakeMyTrip, Jabong, offer closed wallets that can only be used for transactions with them. Semi-closed wallets like Paytm, PayUMoney, MobiKwik, Oxigen, etc., allow users to transact across a network of merchants that they have agreements with. Along with enabling payments on goods and services purchased, they also enable funds transfers to bank accounts, utility bill payments, mobile recharge, and so on.
Still new in the market, most wallets offer attractive discounts and cashbacks to attract more users. What drives the greatest usage of these wallets though is the fact that they operate in the offline world as well, allowing customers to pay through digital wallets at retail outlets, grocery stores, restaurants, petrol filling stations, as well as app-based transport aggregators (Ola and Uber).
While selecting a digital wallet for your use, ensure that the issuing company has the necessary clearances from RBI and is a reputed company. Wallets should not link directly to your bank account and should have better security protocols than a single username and password. Beyond this important check, you can choose the wallet that best covers your purchases and payments and offers the best deals and rewards. The RBI is planning to open up the UPI framework (see following section) to allow interoperability between wallets, which should make it simpler to operate more than one digital wallet.
When we spoke of banking apps and digital wallets, one of the restrictions was the fact that you need to operate each bank account and each wallet from separate apps. The Unified Payments Interface (UPI) is a payments platform that allows you to access your funds from any bank account from a single app, and enables merchant payments and fund transfers under one umbrella.
Using a combination of bank authentication (login, password), unique PIN, as well as Aadhaar number and biometrics for authentication, the UPI platform establishes a common identity for the transacting customers across banking and merchant institutions. This allows complete and open interoperability across all payments systems in the country. So, while most of the banks provide their own app interface for UPI, once logged in, the customer can make payments or transfers from an account held with a different bank as well.
BHIM, Google's Tez, PhonePe are some of the popular non-bank UPI apps (Image courtesy: Guiding Tech). Whatsapp, with over 200 million monthly active users in India, launched a beta payment service based on UPI this February, offering a peer to peer fund transfer feature.
Should we worry about security?
With the rising penetration of digital payments, concerns regarding security, privacy and transparency of charges are gaining ground as well. Apps downloaded on smartphones access information stored on the devices, which make our data vulnerable to hacking or malware attacks. The cybersecurity threat is serious and it constantly evolves. Industry players are aware of this and are committed to building strong security architecture.
However, security is not solely the responsibility of the creators of financial apps. As end users, we are most susceptible to malware attacks and it is therefore essential that we watch our online behaviour and follow certain dos and don'ts to keep our devices and accounts safe.
In a move towards bringing in transparency and tightening security, the RBI recently stated that every payment instrument (digital wallets, payment aggregator apps) will have to abide by the KYC norms as they are also part of the extended banking ecosystem. Though this might hit the payments industry temporarily, in the long run it will be good for the overall ecosystem since wallets will be more secure and people will be more aware about their security responsibility.
Going digital with our money, or not, may not be a choice most of us will have for a long time. The compelling convenience, great value offers and rapid adoption of digital payment mechanisms will eventually win over even the most traditional minded of us. The smartest thing to do then is to wisen up to the new ways of money, do our homework well, and go digital!