India's road to 'cashlessness' has one major obstacle & one important caveat

By Bhavin Turakhia

In the coming years, technology will need to be at the core of India's push towards financial inclusion. As we make the shift from old systems to new ones, it is the right time to take stock of the many technologies on the horizon that will drive this shift. On the road to increasing 'cashlessness' or a 'less-cash' economy lie one major obstacle and one important caveat. We shall return to these, but let us first take a look at the way financial technologies are evolving.

The age old magnetic card
The trusted magnetic stripe card has been through the whole technology life cycle of being the bright new thing, to adding new innovations and becoming a smart card. Magnetic stripe cards and all their innumerable variants have been around so long that the 'bad guys' have had enough time to figure out pretty much every possible loophole in their systems. However, magnetic stripe cards are so widespread that any future financial services ecosystem will likely be built by integrating this technology with newer forms. To uproot and replace the entire card-driven infrastructure with newer tech cannot be a sustainable option. We must leverage this as we go forward.

Virtual is the new real
A product category that has begun evolving quickly and has opened up a new front in the payments and financial transactions space is the virtual cards space. In the case of magnetic strip cards some parts of the transaction cycle, like the card number, the Personal Identification Number (PIN), the physical card itself etc. remain static. Virtual or Digital cards make these entire dynamic and also bring other advantages. They can be operated via web browsers, net banking or smart phone apps. They can be linked to a permanent card number which is never revealed during transactions, by generating dynamic card numbers for each transaction. Similar measures also apply in terms of their validation PINs. These cards will largely remain in the online transactions space, but what a wide space to be confined to.

Hardware Is Key
The common perception is that the future will completely exclude physical payment interfaces, and yet one of the most interesting applications of financial technology has reinvigorated old school retail payments. In terms of hardware based advances in payments technology, Near Field Communications (NFC) has been the brightest new star. NFC allows short range high frequency transfer of data. It has been adopted by everyone from Google to Apple and now Amazon, for designing payment solutions in physical retail, in bridging the gap between the digital and real retail experience. With NFC, users get in their hands a kind of key which you can physically use to commit payments. While e-commerce means that you can do most of your transactions at great distances, the use of NFC is redefining how tactile payment modes can be transformed with a marriage of digital and physical.

Cutting out the intermediaries
There was a time not too long ago, and recent enough for most millennials to remember, when a resident of Kolkata would have found it so very long and arduous to send some money to a family member or business associate in Kerala. Routed through local bank branches to regional headquarters, then inter-bank settlements, and the whole process could take up days. The great breakthrough in payments was the use of the World Wide Web to make payments inter-operable to a degree that was impossible before. To understand how far we have come, India has recently launched its own national payments interface, called the Unified Payments Interface (UPI). In an example of great foresight, India developed its UPI with the mobile space in the foreground. Two people at opposite corners of the country will be able to transact irrespective of which bank or mobile wallet they prefer.

New Kid On the Blockchain
Being a nerd is now a matter of pride and these days your bonafides as a nerd can only be established if you can accurately describe blockchain technology. Among hushed tech circles in Silicon Valley basements, 'Blockchain' is returned as the answer to problems faced by humanity. To simplify, a block chain is an ever increasing network of blocks, each of which could be a PC, server or a bunch of servers. Periodically, a record file of all transactions ever carried out on the network is created and delivered to all members of the block. Since every member of the block chain has the same data, any discrepancy can be weeded out easily, reducing if not eliminating traditional problems faced by accounting and ledger processes. The cryptocurrency called Bitcoin is one example of a wide deployment of blockchain technology. The idea has been so powerful that blockchain technology's core logic is now being used in everything from insurance to art to medicine.

To return to the obstacle and caveat, India must work fast to set up a great deal of network infrastructure. For all the great possibilities and ideas we will need equally good infrastructure to enable them. The caveat though, is network and information security. As mass participation in digital financial services increase, we must put in a concerted effort to strengthen our networks and not fail the users' trust.


(Bhavin Turakhia is co-founder and CEO of Zeta)