Digitalization of payments has emerged as a transformative force for small and medium entrepreneurs in India. In 2016, India launched its Unified Payment Interface which allowed seamless instantaneous money transfers across banks on its network. Savvy banking institutions developed their own Apps on the UPI infrastructure to improve their customer reach and experience.
So, for the first time in India users could send money by just setting up their virtual payment address. Cheque presentment or slow-loading bank apps will not be a problem any more. Entrepreneurs can do away with registering the payees account with the bank or even the IFSC code. Since its launch, UPI has registered a growth rate of 100 times in transaction volumes and continues to grow with our smartphone population.
But now UPI 2.0 e-mandates for totally frictionless transactions is to be launched
The success of UPI 1.0 has opened up a plethora of opportunities for e-commerce companies, small entrepreneurs and fintech companies. Companies are delivering niche and innovative products by building on UPI infrastructure. New technology start-ups have already started on new-gen solutions like biometrics, social media transfers, mobile POS that can further augment the UPI ecosystem. Smart businessmen are already thinking of opportunities in crowdfunding, instant insurance, peer-to-peer lending, micro-credit disbursement and many more.
The drive towards digital is further accelerated with the arrival of UPI 2.0. e-Mandates, one of the key features of UPI 2.0, will provide a fillip to the new economy by cutting out all payment intermediaries. Customers can add or delete pre-authorize payments from their account through a digitally signed instrument. Imagine the possibilities of instant cash for a small business owners! Tehy get teh payments without the frequent reminding calls or house visits.
More players on the bandwagon
New economy players like Uber, WhatsApp, Reliance Jio, Flipkart and many more are moving quickly to grab the e-mandate possibility pie. If you are a regular Uber user, you can trigger an e-mandate to allow Uber to debit directly from the bank to a certain cap. No parking your hard-earned cash on wallets or worrying about online banking on the move. But for entrepreneurs associated with Uber or Flipkart, payments are also instant unlike 2-day waiting period through ACH or ECS.
Flipkart’s PhonePe or the Amazon Pay will deliver the Collection Nirvana for millions of rural entrepreneurs with faster fund transfer. Pay your kirana shops, utilities or dabbawalas with a frictionless, paperless process.
Sachet-ization of financial services
Small the medium entrepreneurs are the backbone of the Indian economy and they deliver over 44% of the employment opportunities in rural areas. But these entrepreneurs face numerous challenges in-terms of capital, credit and insurance access, cashflow blockades and other banking hurdles. Many cannot afford to pay the high insurance premiums or cost of credit. In actuality, insurance penetration is a measly 30% in India with 17% completely out of its ambit.
Imagine insurance cover available in sachets, like “Get 5 Lakhs coverage with a daily premium of INR 1.” But this product will need a mobile delivery, auto debit facility and faster KYC processes – all possible through e-mandates. The digital infrastructure that operates on the India Stack will enable seamless auto-debit and customer on-boarding, bringing down costs exponentially. In the long run insurance companies can target higher volumes with lower servicing costs bringing down premium costs.
Similarly, the frictionless, paperless and digital credit services running on e-mandates can enhance credit access to SMEs. Business owners have given a thumbs-up to paperless transactions with websites like Bank Bazaar indicating an uptick of 60% on loan applications and 3% reduction on costs. NPAs are also significantly reduced on paperless disbursements. With e-mandates, the frictions due to physical KYC and collection of wet signatures can be relegated to the boot.
India has the technology, regulatory and underwriting process to deliver frictionless and paperless access to financial services. Regulatory reforms is the need of the hour. RBI should increase the limits of loan disbursement through e-mandates and bring in our regulatory agencies to the fold. E-mandates along with Digi Lockers can enable consent based sharing of funds and documents possible. SMEs operating in remote corners of India can easily access credit without moving documents through the bureaucratic wrangles. Banks and Fintech companies also will have better confidence in repayments with e-mandates facilitating auto-debit that is revocable with the consent of the lender.
Mobile frictionless financial processes enabled through e-mandate will deploy India’s emerging small and medium units in to the global mainstream. All we need is to remove onerous documentation, complex access process and higher costs of financial services that let our entrepreneurs down.