Quickly after we applauded the geopolitical significance of UPI going world on these pages final month, the top of analysis at a European financial institution obtained again with an attention-grabbing argument: Whereas the expertise is nice, money is again to being king, he stated. To the analyst and investor who pores over world information, it meant two different issues:
- The ATM enterprise in India is a superb one to take a look at now.
2. The India-going-cashless-with-UPI story is maybe exaggerated.
The money in circulation in India’s financial system has certainly gone up. And this money should be distributed. For banks, branches are costly to arrange and handle so it is sensible to have ATMs everywhere. As for UPI transactions slowing down, that is borne out by RBI information which has it that the amount and worth of transactions are decrease than final yr.
Anuradha Rao, former Dy MD of State Financial institution of India, says, “Relying in your perspective, information can imply various things to totally different individuals.” Whereas it’s actually true that the money in circulation has gone up, juxtapose it with anecdotal proof from the actual property and jewelry companies the place transaction values are excessive. Research have it that nearly 44% of actual property offers contain money whereas 60% of gold jewelry is bought with money. These are tips that could how money lubricates the mainstream financial system. If this be a case that folks want money then a enterprise case for ATMs exists.
However as she explains, the ATM enterprise isn’t a simple one to be in. The Reserve Financial institution of India (RBI) insists on stringent safety and compliance on how money is dealt with and transported in addition to how ATMs are operated. By the use of instance, the RBI rulebook has it that vans transporting money should essentially be accompanied by two armed guards. Sure ATMs are required to be manned across the clock. If an ATM runs out of money, banks are penalised. Simply the right way to refill it on a ‘just-in-time’ foundation is a posh operation. It will get much more advanced as ATMs percolate into semi-urban and rural areas the place money should be transported to from a ‘central depot’. Add to this the price incurred for round the clock CCTV surveillance.
There are different guidelines as effectively that ATM operators should adjust to. Buyer complaints are to be resolved between 2 days to 7 days primarily based on ATM logs and CCTV footage. If the financial institution can not show it’s appropriate, will probably be assumed the client is correct. Whereas well-intentioned, the variety of individuals throughout the nation who’ve discovered the right way to extract cash from ATMs is remarkably excessive.
Then there may be the truth of telecom connectivity in India and its robustness on a round the clock foundation. Folks within the banking sector acknowledge off-the-record that counterfeit forex is smuggled into the nation. This implies new safety features should be embedded into notes and that will increase the price of printing forex.
If that’s the case, the inevitable query is: Why not undertake and push UPI more durable? It bypasses all these points. And since it really works, why is progress tapering?
The reply lies within the nature of the ecosystem. Any cost system should be acceptable throughout all components of the worth chain. By the use of instance, whereas vegetable distributors or kirana retailer house owners might agree to just accept digital funds from prospects, their wholesale provider should additionally settle for funds by way of UPI. However as we’re discovering now, there are sensible points. Lots of them are a part of a casual financial system and might deal with money, however utilizing apps the place numbers should be learn and written is a special ball sport. The shortage of those abilities means they can not use the UPI apps. Some might not have a smartphone. Then there may be the telecom connectivity that may play truant in rural areas. The constraints UPI faces in penetrating into the hinterland are very actual.
The excellent news is that the core workforce that labored on creating UPI acknowledges there is a matter and is already at work on getting it streamlined additional.