Sanitising Distortions in Digital Payments

Abstract

The unprecedented measure by the Government of India to withdraw the legal tender character of high denomination currency will ship the country several notches ahead towards a less-cash more-digital economy, notwithstanding the transitory pain in implementation. With more than 728 million Debit cards outstanding as of September 2016, the financial inclusion initiative of the Government and the Reserve Bank of India has already given primary digital access to almost every adult Indian along with a bank account. While the need and convenience to go digital is now being felt by most of the consumers and businesses, including the micro and small ones, time is absolutely opportune to think of long term solutions. With innovations in Core Banking Solutions and communication technology, digital payment space, which was initially occupied by Credit cards, has expanded to credit-less mediums. Amongst these, Debit cards are in the lead, with mobile-based payments, prepaid instruments/wallets etc. growing at a good pace. While the recent move by the Government has given a strong stimulus to digital payments, this paper addresses an important distortion that remains in the digital payment space (credit-based vis-à-vis credit-less alternatives) which needs to be urgently addressed for furthering its acceptance and usage. A survey is undertaken to gather user preference and consumer perception on credit cost in digital payment system. With an understanding of the user preference and analysing the pros and cons of the prevailing mindset of availability of free credit, the paper suggests paths that may facilitate migration to a fair and non-discriminatory less-cash more-digital society. Though the conclusions of the paper apply to all countries, the focus is on India.