Sunday, July 10, 2016

The challenge of small payments

The huge population of India and the tradition of making small payments in cash only has created a problem. It is difficult to get 5 Rupee coins leave alone smaller ones. It is very common for shop keepers and auto rickshaw drivers to tell you they do not have change. I suspect that the Reserve Bank of India (RBI) finds it costly to mint coins and to print small denomination notes.
Innovation is called for. Imagine you can “beam up” amounts such as Rupees 57.50! All you should be doing is to enter 57.50 into an app, point your cell phone at a device in the shop and click a button. The amount should be transferred and a receipt in the name of the merchant, giving a transaction reference number, should be saved in your app. The app implementer can choose the mode of signaling, using the LED flash on the cell phone, or using Bluetooth or WiFi. Ideally the app should automatically turn on Bluetooth or WiFi even if the customer has not switched them on. The app can switch them off after the payment.
What about the transaction cost at the Bank’s end? Don’t worry, the banks know various ways of passing this cost on to the merchant! In any case, this cannot be very high; further any such cost will be more than compensated by faster handling of small payments at the merchant end.  
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1 comment:

Srinivasan Ramani said...

A friend asked me why I did not merely use the Paytm app, or something like that for making small payments, instead of waiting for someone to device a method of making simpler cellphone payments. Actually, the Paytm app allows you to enter a mobile number given by the merchant and the amount and effect a payment. Pretty fast.

The problem is that hundreds of millions who own a cell phone cannot do all that is necessary to start and maintain a prepaid e-wallet account. They are the ones who do not do Internet banking. They have never transferred funds over the net. They are also unlikely to want to tie up a few hundred rupees in an account apart from their bank account.

We need to think of these millions, unless we want to keep working for an economy limited to 10% of the Indian population. Bold thinking is required to make small payments work electronically for the bulk of the population. Cell phone companies are best fitted to push this fast, but I feel that unimaginative regulations have slowed them down.