India’s Digital Payments Could Grow Tenfold In Three Years, Says Nandan Nilekani
India’s digital payments could grow tenfold within the next three years if the Reserve Bank of India-appointed panel’s suggestions are implemented, according to Nandan Nilekani.
“Today it’s about 22 transactions per capita. It can go to 220,” Nilekani, who heads the committee on digital payments, said during an interview with Bloomberg. “We identified number of things on how to make acceptance network more ubiquitous, how to make dispute evolution more online. We have come with lot of recommendation and if we put all these together, we can make a big difference.”
The panel has recommended that the regulator consider reducing the interchange on card transactions by 15 basis points to boost electronic and digital payments in India. It also suggested the government could consider subsidising the merchant discount rate for card transactions.
India could use a lack of technology to its advantage while leapfrogging rival countries that may struggle to replace their decades-old technology and “incumbents”, said the former chairman of the Unique Identification Authority of India. “The lack of technology often becomes an advantage because you can use the latest technology and you don’t have to worry about legacy system”, said Nilekani.
Watch the full interview here:
Here are the edited excerpts of the interview:
I want to start with news of the day, which is trade. Bloomberg is reporting that President Trump ended benefits that allowed India to export about 2,000 products to U.S. duty free. These were benefits that the U.S. offered voluntarily, they were not mandated by any global trade pact. How worrisome is it at a moment like this?
Today we are in world where we have these kinds of things. By I think by and large, I am very bullish on Indo-U.S. trade. There are lots of things we do in the U.S. India is a big market for U.S. companies, whether they are planes or software. So, there is a lot of two-way trade possible. I am overall very optimistic about the future of Indo-U.S. trade.
…Although it might be rocky getting there?
There might be a few perturbations here and there. But fundamentally, it is on a good wicket.
If I recall correctly, Infosys relies on the U.S. for about 60 percent of its revenue. Do these worsening trade ties impact you directly in any way?
Not really because we have moved very well. Today, we are hiring 10,000 people in the U.S. We are setting up six innovation hubs across the country. We are getting a terrific response from local government, governors and even from the federal administrations. The fact that we are working on creating jobs here, hiring young people and training them is working very well. I think we are getting a great reputation for job creation in the U.S.
Do you think you have an open line to the government when it comes to making sure that visas are still a two-way street and it is possible to bring talent over?
That’s an ongoing conversation. But overall, we are doing so many things here which are working in our favour.
Investors are increasingly pricing in a gloomier economic picture, a slowdown or perhaps even a recession, as many people are saying in the market. What does that mean for spending on IT services?
The spending on IT has now become fundamental because many large firms are facing an existential issue of how they reinvent themselves in this era of digital disruption. Even as they face business challenges, they have to continue to spend to re-imagine their businesses, use new technology, take money from old system and bring it to the new. While we found that there is an overall economic cloud, the spending on IT services in the kind of work we do continues to be unabated.
I want to get your thoughts on the U.S. increasing regulatory oversight on big technology companies. We have been hearing about how Facebook, Google, Apple,and perhaps even Amazon are caught up in this. We have seen Europe tighten its the grip on this industry. Will this reshape the landscape for big tech companies, not just those in the U.S. but overall?
These are early days and we don’t know where exactly this will go. But it is true that there seems to be more interest in these issues. But it is very early to comment on where it will go.
Is being big a good or bad thing in this day and age?
Being big is important. Being big has scaled benefits. We have platforms with billions of users. So, it is important to have scale but at the same time people may be interested in some of these issues.
Last month saw a landslide victory for Prime Minister Modi. How do you see Modi using his strong mandate?
I do hope that it will be used for economic reforms. India is well placed, but it has to do a number of economic reforms like simplifying labour laws, getting the banking sector back on track, creating jobs. So, there are lot of big things which needs to be dealt with. I am hopeful that with this majority and clear mandate, they will do that.
What kind of timeline they need to work with?
Reforms have to be done very quickly. All governments have to do reforms in first few weeks or months of their tenure.
Nationalism has been very big thing across elections, including India. There have been debates about data localisation and new regulation in the e-commerce space as well. Can we expect India to adopt a more nationalistic approach to digital economy?
It should be balanced. I am confident that they will come up with model which benefits both domestic and global players. India is only market in world where you have intense competition between American companies, Chinese companies and Indian entrepreneurs. That kind of competition is very good, and I think it will continue.
We have seen Amazon, Walmart and Whatsapp, among U.S. companies, which have got some push back in India. Do you see Modi’s re-election leading to more scrutiny for these kinds of U.S. companies?
Companies will be welcomed and they will find the right balance of what they need to do for local companies and what they need to do for global players.
You played a pivotal role in the digital transformation of India. You lead the Reserve Bank of India panel on digital payments. Digital India is one of your passions and is what you work on. Digital India which was conceived five years ago. Talk about what a transformation it’s been.
This is one of the great success stories of this government and of India. We have Aadhaar, which has billion plus users. We have a brand new goods and services tax system that’s entirely on one digital platform with 11 million taxpayers. We have a payment system for UPI, which is doing 800 million transactions a month. So, across the board I think great stuff is happening on digital and that will be one of the big drivers for economic growth in India in the coming years.
So, Aadhaar is a government programme?
It is a government programme to give digital IDs to 1.2 billion people. I was the founding chairman of the organisation. I set it up 10 years back and today it has become a pervasive and ubiquitous digital ID system which people around the world are looking at.
Talk about the opportunities of private sector on it because you can build apps based on this infrastructure which you have set up.
You have electronic KYC where a mobile company can speed up and get customer in two minutes. Banks can dramatically add new customers. All this infrastructures which is available as utilities can be used to build businesses using innovation. UPI is used by Google or WhatsApp, Amazon, PhonePe, Paytm. All these infrastructures are public utilities which people can built on top of. Think about how a generation back the internet that was built by the government became such a big success. GPS which was built by the government is now used by everyone for maps to car railing. Similarly, these are infrastructures which will used to build innovation at the top.
Do U.S. companies or foreign companies be just as welcome to build it?
Everybody. In the payment space today, every foreign company is there and there are a couple of Indian companies. So, it is a level-playing field.
India is looking for digital infrastructures to revive its economy. What specifically does India need to build to get to a $1 trillion digital economy?
I think continuing what we are doing and continuing the role of data through what is called data empowerment architecture, which allows individual and businesses to get use their own data and get better credit will help, and India has all the building blocks in place. Everybody has a bank account, mobile connection with low free data, and everybody has a biometric ID. All the building blocks are in place to create all kinds of capabilities to take India forward.
Is 2025 a realistic target for $1-trillion digital economy?
It is entirely possible.
How can a company look at this opportunistically and also create something that’s good for society? What is a good data strategy to pursue?
The data empowerment architecture of India enables consumers of small businesses to access their own data from different data providers. It could be bank data or invoice data. It then offers it in a secure manner with their consent for somebody else to give them a loan or financial services. This means new companies can come up with consent of user and give them benefits with their data. That is what it is all about.
There is also invites question of security and privacy.
This is built with security, privacy, consent. Everything is done with full consent of user.
How do you protect against cyberattacks?
The whole thing is encrypted end-to-end and there is a lot of things in the technology architecture. There are digital signatures where every packet is signed. As it is built new, we can do things differently.
Talk about India leapfrogging in this age of tech disruption. You mentioned that India has to pass where other countries have gone through. You are starting at lower base and you have to jump to other levels.
If countries have put in lot of technology in last 30-40 years, replacing that is not easy because there are so many legacy systems and incumbent. But in countries where there is no technology, you can leapfrog. For example, mobile phones. India has very few landlines but a billion mobile phones, or data and all these things. Lack of technology often becomes an advantage because you can use the latest technology and you don’t have legacy systems to worry about and you can leapfrog over many things. India is a good example of it.
And there is lot of less resistance because of that?
Exactly. There are a lot of new things. There are no incumbents and there is nothing to be removed. You are just rolling out new things.
You have been in the RBI-appointed committee on digital payments with aim of making India highly digital and cashless. What is the biggest obstacle in doing this?
The RBI report which went to the public domain this morning said that India can grow digital payments by 10 times in three years. Today it is about 22 transactions per capita. They think it can go to 220. We identified a number of things on how to make acceptance network more ubiquitous, how to make dispute evolution more online. We have come with a lot of recommendation and if we put all the recommendations together, then we can make big difference and see a 10 times increase in digital payments within three years in India.