One of the biggest movers of any sector in the 21st century will be digitisation. In India the financial sector is at the vanguard of digitisation and is itself in the throes of a major transformation. Starting in the late 90s from POS machines to NEFT or the National Electronic Fund Transfer, then the UPI or the Unified Payment Interface and maybe very soon payment banks. Indians are converting to paying digitally to each other at a frenetic pace.
CNBC-TV18's Latha Venkatesh chats with AP Hota, MD & CEO NPCIL, Venkatesh Hariharan, Director Fintech, ISPIRIT, Sanjay Gurjar, MD & Head Transaction Banking Standard Chartered Bank, AP Singh, CEO India Post Payments Bank to gauge how the country's banking system and payment system will look say five years from now, what maybe the challenges and opportunities.
Below is the verbatim transcript of the discussion.
Latha Venkatesh: So Mr. Hota, you are the man who has already engineered the transformation by this Unified Payment Interface. Today I have an email-address kind of identity on my bank account and I make a lot of payments – to my maid, my kirana wallahs, my laundry boy, my gardener etc. just by transferring money. Can you tell us, nationally speaking, how has the UPI evolved?
A P Hota, MD & CEO, NPCIL: UPI is now a one-year old mobile payment product. Previously, we had IMPS *99# which was another mobile-payment product and individual banks have their own mobile products. We launched UPI in August 2016, and in 2017 we’ve completed one year. As of now there are 52 banks as members. That means, the customers of 52 banks have this facility. As of now, we see 16 million customers who have downloaded the application- out of which 5 million are active customers - that means they‘ve been able to download, link the application with bank account, and now they can send money to one another. The volume is growing and a lot of action is happening. What is most important is that since it is an API-driven mobile banking platform - that means if platforms can follow the rules of the game, they can be interoperable.
Latha Venkatesh: Let me bring Mr. Singh into the picture, Mr. Singh, we have great hopes in both the payment bank and in India Post as a payment bank, because geographically, nobody has this spread and reach that you have, and reaching customers who probably are not included in the banking system or payment system. Tell us your game plan.
A P Singh, MD& CEO, India Post: So, in a word the game plan is – Simplify digital payments - so that people at the bottom of the barrel can access them. So, how does this look? You have something like 400 million smart-phone owners in the country, 300 million people with the feature phones, and I would take a guess that there are 300 million who have neither. So adopting the ‘Bottom of Pyramid’ approach first let’s get to those 300 million who don’t have a phone and simplify payment for them which might be assisted services where the postman or the Gramin Daak Sevak helps them to make payments for things like utilities. And we figure out dozens of payments that every household has. So, get these people with assisted services. The second stack, that we are looking at, is 300 million people with feature phones. While there is technology which is evolving it’s something as old as voice telephony, also we believe could be leveraged.
Latha Venkatesh: O.k. let me come to Venketesh before I ask the banker. Venkatesh, we have many ways of paying digitally. I am still a very big card user and I would assume outside digital-card users are also aplenty, then you have QR code- you have a lot of people using systems like Paytms and banks also have their own wallets. So how do all of these fall in place? There is this giant UPI perhaps. How do all of them coexist?
Venkatesh Hariharan, Director- Fintech, ISPIRIT: So, the way we see payment evolving in India is - if you look at globally how the payment space has evolved, it has been typically a duopoly of two different companies, If you look at the US, the MasterCard and Visa, if you look at China its WeChat and Alipay. In India, we think UPI is what will really take off, and in the next five years, I won’t be surprised if UPI reaches about 200-300 million users. The reason I say this is that if you have Reliance coming in, if you have Paytm, Whatsapp, Google etc. coming on UPI, then I think that will become one of the largest payment platforms. And, of course, if you look at the transaction cost and if you look at the ease of payments, etc., in the next few years this is probably going to be the most dominant payment system in India.
Banks and Payment Disruptors
Latha Venkatesh: So, will the others cease to exist or you see that even for the next 5 years others will co-exist?
Venkatesh Hariharan: I would say that the other systems will coexist. I think you’ll always have a set of people who will use currency credit cards, etc. but the entire thing with UPI is the ease of access, the ease of entry into the system, the competition etc. is designed to be open. You could say it’s one of the most open payment systems anywhere in the world.
Latha Venkatesh: Sanjay, for banks and the way UPI has been evolving, you’re not losing, you’re actually gaining. More people will use the banking systems. It is not a zero game for you. How do you see banks benefitting and therefore adopting digital payments?
Sanjay Gurjar, Head Commercial Banking, Standard Chartered:- Yeah, thanks. Absolutely. We see as a big opportunity and even though there has been a misconception around foreign banks and how they never get affected by what’s happening at the ‘bottom of the pyramid’, but nothing could be further from the truth. The way we look at this is we have got corporate clients who’ve got clients who go all the way down. When we are servicing our clients, we are seeing the entire ecosystem. We are looking at the entire supply chain and the entire supply chain is growing. We are looking at courier companies who are into that e-commerce thing - how can you convert that into you know non-cash but still maintain all the safety features etc. which is where UPI comes in. So for us, it is a huge opportunity to actually service a customer better, faster and more reliably. So clearly, it’s a big opportunity.
Latha Venkatesh: So, do you see yourself tying up with someone like, say India Post, for instance, and probably may be giving a loan to someone because India Post has given you their credit record? Is that one way in which banks may think about opportunities?
Sanjay Gurjar: Absolutely. In fact, the way the bank looks at it is not as a working in silos and to do our own thing, our own innovation centre and innovation labs etc.; it’s not about that only but it’s about partnership. You can’t scale up without partnership, you have to look for collaboration, you have to look at enablers and if you look at Fin-tech firms like, there is another misconception that Fin-tech firms gonna wipe out banks or be against banks? Absolutely not. If you break up Fin-tech into 3 parts - There’re disruptors enablers. The disruptive part is of small minority. The bigger piece for us is the enablers and the collaborators with whom we can work together, pick and choose and have JVs. I guess we’re looking at all those. We are democratizing access as I call it. It’s the ‘equality of opportunity’ moment of India. There’s access to health, education etc. which goes from top to bottom. If you are part of that, great.
Latha Venkatesh -So, opportunities are challenges because every Indian will leave behind a footprint every time they make a transaction, there should be Big Data which will be able to use this. That will be the opportunity. The challenge will be - can we break through illiteracy and poverty in develop digitization.
Those two key challenge opportunities we’ll discuss after a very short break. Back in a jiffy.
Well, you all of you discussed how you have seen the scene so far. I want to speak about some challenges. Mr. Hoota, the UPI has been adopted well as you said. What do see as challenges? For instance, I am able to send money to my maid but I still have not been able to teach her to use it because she is illiterate?
Literacy and Phones:
A P Hota:: The first challenge is we see is that not all banks are part of UPI and for which the work is on. In fact, if the government and RBI both are keen. In fact, the government has indicated that all the regional rural banks also must be part of UPI. When I say that they would be part of UPI, question comes - is a smart-phone required for UPI? No, smart-phone is one area where UPI can be done. But with feature-phone also the customer can become part of UPI. *99#
So, UPI is for both smart-phone people and also for feature-phone people. We first have to change the conception that this UPI is for all. Second is obviously awareness. People are not aware that such a beautiful product is there.
Latha Venkatesh: So, how are you teaching people?
A P Hota: In fact, we’ll have to go for a wide publicity. I am very happy that now government of India is also keen, they are ready to give us some Grant so that we can do wide publicity. We have already made UPI in different languages. Also, let me clarify when we say UPI, in fact, UPI is one of the mobile-banking products. There is IMPS product also, which is 4-5 years, quite a few years old, and the volume of IMPS transaction is much more than the UPI. It is ten times that of UPI. So all the mobile-banking products - we’ll have to see that it caters to the needs of all, and our biggest thing to get done is - awareness.
Latha Venkatesh: Awareness - that is what I thought the postman will do and that’s in my own world-view or vision of India digitization. I always thought that the postman will be the messenger of financial literacy. Do you think, Mr. Singh that, I mean - I don’t know how collaboration would happen between UPI and India Post Payment Banks? But do you think your postman will be able to get people into digitized payment arena?
A P Singh: Yes, so the answer to that Lata is - Yes. But I don’t entirely underestimate this so-called illiterate person. Because what they’ve shown is a great agility, for instance, to use mobile instruments - which is just numbers 0-9. If you look at payments really there is nothing more to be done. One, I believe that while they may be illiterate, they still have the common sense and a learning curve to be able to use basic numerics, and help themselves. So, I think that’s one thing. The second, of course, is the post office is playing its traditional role. So fifty years ago, we had writers sitting outside post offices who would write your letter and we had postman who would read your letter. Now if take this to payment services they could as well be doing assistance services at your door step. I do realize that this is a more sensitive than reading or writing a letter.
Latha Venkatesh: You said that you are first going to cater to people who don’t have those 400 million smart-phones and 300 million of feature-phones. But will that remaining people have nothing to save or pay? When we look at India’s poverty statistics - Below the Poverty Line - even very conservatively defined - tightly defined would be, may be thirty rupees a month or fifty rupees a month. That comes to like 25% of the population. So, will they have anything to pay?
A P Singh: Well, those who don’t have anything to pay have something to receive. That’s where other businesses come in. In banking jargon, payments is about accepting deposits. Actually payments are just not about deposit, it’s about making payments and whether you earn 300 Rs. 30 Rs. Or Rs. 30,000, everyone makes payments because nobody is hoarding this money. So, I believe that there is a universal requirement of payments.
Latha Venkatesh: Are state governments already with you all? Before Aadhaar came in, state governments, I think, at least Andhra Pradesh was, trying to make its social secure service payments through India Post? Have you tied up with any state governments for this?
A P Singh: So, Andhra Pradesh actually pays more NREGA and pensions through the post office than all the other banks put together, and this is entirely been digital, it’s all using Aadhaar, microATMs, etc. But, forget the state governments - something like 300 million people have an account with the post office currently. Our head quarter is in Parliament Street in Delhi which is like a golden mile as far as the banks are concerned. Almost every bank, including Stan Chart, from Connaught Place to Parliament. But I do believe that the Parliament Street post office has more accounts than all of them put together. So, it’s not just the governments but people who are hesitant to enter a bank too, are banking with the post office.
Latha Venkatesh: Absolutely, oh! Yes I mean this cultural point is very very important. You may be little deterred to enter some of India’s private sector banks, but post office may break that image. O.K. now I we have to wind up. So, winding up comments from you Sanjay. How do you see the banking system, say, 2 years from now or 5 years from now? How much of Big data or analytics are you all already seeing on the horizon that can you know transform your opportunities?
Sanjay Gurjar: So, let me answer that in a slightly different way. So, what it was earlier and where we are going today. Banking had, to a great extent, from where I come from - the transaction part of the bank was much commoditized system and normal cheques and the normal that kind of stuff, and the normal trade going on etc. From there, we moved a long way over the last two years and largely because of the initiatives taken by NPCI and the government. A lot of government push and, of course, the mobility revolution which is a part of what is happening on the mobile and all that - has colluded, sort of, say, to suddenly we are in the midst of significant change, lot of positive change, we have to quickly adapt to that.
Latha Venkatesh: About paperless banking. Suddenly this rule that oh! You can have only 20 branches, 50 branches - is pointless. Do you see, therefore, exponential growth in bank loans 5 years from now? Do you see even loaning to someone in Dwarka Amarnaath or Kanyakumari?
Sanjay Gurjar: So, I will give you an example. Let’s just look at small or medium businesses. If you look at online usage it’s just 2% of that is there. Look at merchant banking establishments - 15 million merchant establishments in a day just about 1 million across terminals. Now Bharat Core, for example, is a great thing for small merchants. That’s gonna grow exponentially with the volume of business growing, with that comes data, with that comes analysis - predictive and trend, and there we are with the loans, you can easily tap them but it’s just gonna grow exponentially. So, now the winners, of course, would be the ones who change as well as the ones who make the correct bets. Because a lot’s happening around us.
Latha Venkatesh: Thank you. Venkatesh -a last word to you as you are the tech guy in this group. How would payment and banking look 5 years from now? Are you seeing a massive growth in loans and, therefore, economic development?
Venkatesh Hariharan: So, two parts- I think in India the way payments has been built, that thing is leading to a lot of competition and innovation. Second, because of India tech and these kind of technologies will be positive to kind of aggregate data about consumers in real time, run algorithms on that and provide real-time loans on that. And we’re already seeing that because yesterday I was talking to a company - a Fin-tech company which has built a massive loan bucket and it has catered to kirana shops and others. And 90% of these people are taking a loan for the first time in their lives. So, I think this whole flow-based lending is going to be a next big area growth for the banking system in India as opposed, to say, asset-based loan against property.
Latha Venkatesh: O.K. Gentlemen, we’re out of time, but not out of ideas, not out of hopes. Thank you very much Mr. Hoota, Venkatesh, Sanjay and Mr. Singh.The key thing takeaway from our guests is that we are going to be able to see payment digitized payment fast changing. You don’t even need a bank account- the postman will, hopefully, be able to handhold the last-mile Indian to perhaps use the UPI or even without the help with UPI someone can pay in an another part of the country or receive payments from his state government, from his district head quarters or from the central government. And the amount of footprints in data that he will throw up will hopefully enable a formal banking system, to lend loans and therefore help India get economic growth at a frenetic pace, a pace we’ve never seen before. On that hopeful note, thank you very much for joining us in this special show.