INR 70,000 crores (USD 10.4 billion) Over Next Five Years: Visa Study
Cost of cash can be reduced from 1.7 per cent to 1.3 per cent of GDP by expanding acceptance of digital payments, energizing innovation and bolstering financial inclusion
New Delhi, October 05, 2016: Visa, the global leader in payments technology, today unveiled the report “Accelerating the Growth of Digital Payments in India: A five–year outlook”. This study, the first of its kind for India, looks at the benefits of transitioning India to a less–cash society over the next five years, and provides a roadmap for action.
Demetrios Marantis
T.R. Ramachandran
TR Ramachandran, Group Country Manager, India & South Asia, Visa, Amitabh Kant, CEO, NITI Aayog & Demetrios Marantis, Senior Vice-President
Visa
According to the study, the cost of cash places a huge burden on the Indian economy equivalent to 1.7 per cent of GDP. This high cost of cash stems from large volumes of cash flow in the Indian economy relative to its peers across the globe. For example, in India in 2015, the number of digital transactions per capita was only 10, compared to 163 in Brazil, 420 in South Korea, and 429 in Sweden[1].
Unveiling the report, Amitabh Kant, CEO, NITI Aayog, Government of India said:
“We welcome the release of Visa’s report and its policy recommendations for transitioning India to a less–cash society. Digital payments will pay a critical role in achieving the Digital India vision and in driving financial inclusion. Achieving this goal would not only help us to bring more people into the formal financial system, but also in reducing the size of the shadow economy and delivering an increase in jobs.”
According to a 2016 Moody’s Analytics study commissioned by Visa[2], increased use of digital payments cumulatively added US$296B to the GDP of 70 countries across the globe between 2011-2015. In India, the increased use of digital payments added US$6.08B to the GDP, over the same period. That’s the equivalent of 337,000 jobs added due to a combination of fast growing labour productivity and increasing card usage.
Visa’s report points to six factors for high cash usage in India – (i) a high propensity to save in and use cash; (ii) a large shadow and remittance based economy; (iii) gender imbalance in the use of payments; (iv) high cost of acceptance infrastructure; (v) regulatory limitations and (vi) insufficient focus on financial literacy.
However, India has the opportunity to reduce its cost of cash from 1.7 per cent of GDP to 1.3 per cent of GDP delivering savings of INR 70,000 crores (USD 10.4 billion) in the next five years. If India could sustain a reduced cost of cash of 1.3 per cent of GDP until 2025, India could save up to an additional INR 4 lakh crores (USD 59.4 billion) by FY 2024–25. In summary, the total savings by 2025 could be INR 4.7 lakh crores (about USD 70 billion) with the appropriate policy initiatives in place and followed by effective execution.
This could be done by making an investment of INR 59,300 crores (USD 8.8 billion), of which INR 58,000 crores (USD 8.6 billion) would need to be incurred by the Government of India by way of fiscal incentives provided to consumers and merchants, and lowering of import duties on point–of–sale (POS) terminals. The remaining investment would need to be made by banks to expand the acceptance network from the current 1.3 million POS terminals to 4 million over the next five years and bringing about 41 million households into the financial system.
Today, less than 5 per cent of India’s INR 75 lakh crores (USD 1,114.4 billion) consumption expenditure is made using digital payments[3]. The measures outlined in Visa’s report, together with a series of other policy levers, could result in increasing digital consumption expenditure to around 35 per cent in the next five years.
According to Demetrios Marantis, Senior Vice President, Global Government Affairs, Visa:
“The payments landscape in India is at a point of inflection with growing acceptance infrastructure and consumer adoption of digital payments. Continued Government initiatives to drive e-payments, including fiscal incentives for consumers and merchants to switch from cash, efforts to bolster financial inclusion, and a focus on innovation are necessary to drive change.
“India should look to international examples for ways to increase the adoption of digital payments such as establishing an acceptance development initiative in Indonesia and Poland, mandating payment of salaries electronically in Uruguay, and wide scale digitisation of person–to–government payments such as transit in London and Singapore. Similar initiatives could be game changers for India.”
T.R. Ramachandran, Group Country Manager, India and South Asia, Visa said:
“It is with great pleasure that we release the Accelerating the Growth of Digital Payments in India: A five–year outlook report. India has a significant opportunity to advance the development of its payments system and achieve important national objectives including driving innovation and digitization, enhancing financial inclusion, promoting transparency, and widening the tax base. In turn, this would encourage economic growth and job creation.
“We hope this report provides a timely contribution to the discussion of policy, regulatory, and infrastructure changes necessary to leapfrog and modernise India’s payment systems. We are deeply committed to supporting the government’s vision of a less-cash, technology driven, secure, and competitive digital payments industry. We look forward to working in partnership with others to drive the growth of digital payments across the country.”
About Visa
Visa Inc. (NYSE:V) is a global payments technology company that connects consumers, businesses, financial institutions, and governments in more than 200 countries and territories to fast, secure and reliable electronic payments. We operate one of the world's most advanced processing networks — VisaNet — that is capable of handling more than 65,000 transaction messages a second, with fraud protection for consumers and assured payment for merchants. Visa is not a bank and does not issue cards, extend credit or set rates and fees for consumers. Visa's innovations, however, enable its financial institution customers to offer consumers more choices: pay now with debit, pay ahead with prepaid or pay later with credit products. For more information, visit usa.visa.com/about-visa, visacorporate.tumblr.com and @VisaNews.
Appendix
The report finds that India would benefit from a three-pronged strategy to transition to a less cash society:
1. Expand Acceptance Infrastructure
• Establishing an India Acceptance Development Fund to incentivize banks to expand acceptance in underpenetrated merchant segments and geographies
• Incentivizing the use of digital payments by providing a tax rebate of INR 2,000 per capita per annum
• Incentivizing merchants to accept digital payments by providing them a 50 per cent tax rebate on 50 per cent of their turnover
• Lowering existing countervailing duties and levies on POS machines to 5 per cent and promoting domestic manufacturing
2. Energising Innovation:
• Embracing new approaches for government payments working with a virtual account, e.g. introducing government procurement and disbursement cards
• Adopting open loop payment systems for mass transit
• Actively encouraging adoption of new form factors, products and technologies, and platforms, like mobile–based payment solutions, Bharat Bill Payment Systems, and PayGov
3. Bolster Financial Inclusion:
• Facilitating inter–ministerial collaboration to leverage existing GoI programs, for example the SMS portal for farmers mKisan, and engagement with the states for education
• Designing specific programs to meet needs of the financially underserved
• Driving financial literacy programs at schools and higher level education
• Promoting financial inclusion in collaboration with existing microfinance institutions
Demetrios Marantis Senior Vice President, Global Government Relations, Visa Inc.
Ambassador Demetrios Marantis serves as Senior Vice President, Global Government Relations, leading Visa’s global government relations team and is responsible for partnering with government officials around the world to advance policies that foster the growth of electronic payments.
Ambassador Marantis joined Visa from Square, where he led global policy, government, and regulatory affairs. Prior to joining Square in May 2013, Marantis served as Acting United States Trade Representative and Deputy United States Trade Representative. Marantis was nominated for his position by President Barack Obama and confirmed by the U.S. Senate on May 6, 2009. As Deputy United States Trade Representative, he was responsible for U.S. trade negotiations and enforcement in Asia and Africa, including the TransPacific Partnership (TPP), the Asia Pacific Economic Cooperation (APEC) Forum, the U.S.-China Joint Commission on Commerce and Trade (JCCT), the U.S.-India Trade Policy Forum, and Trade and Investment Framework Agreements with countries ranging from South Africa to the Philippines. He played a central role in the negotiation and congressional passage of the U.S.-Korea trade agreement and spearheaded conclusion in APEC of the first ever agreement to reduce tariffs on environmental goods.
Before the Obama Administration, Marantis served as Chief International Trade Counsel for the Senate Finance Committee. In this capacity, he advised then Finance Committee Chairman Max Baucus, as well as members and staff of the Finance Committee and Democratic Caucus, on trade and economic issues. He joined the committee in February 2005 after serving as Issues Director on the Kerry-Edwards 2004 presidential campaign. Marantis spent 2002 through 2004 in Hanoi as Chief Legal Advisor for the U.S.-Vietnam Trade Council where he provided technical assistance on international trade matters. Between 1998 and 2002, he served as Associate General Counsel in the Office of the U.S. Trade Representative where he negotiated provisions of international trade agreements and represented the United States in WTO dispute settlement proceedings. He also worked for five years in the Washington, D.C. and Brussels, Belgium offices of Akin, Gump, Strauss, Hauer & Feld.
Marantis holds a J.D. from Harvard Law School and an A.B. in Public and International Affairs from Princeton University.
T.R. Ramachandran Group Country Manager, India and South Asia
Current Position and Responsibilities
T. R. Ramachandran (Ram) is Visa’s Group Country Manager for India and South Asia. He is responsible for the overall management and strategy development and execution across all aspects of Visa’s South Asia business in India, Sri Lanka, Bangladesh, Nepal, Maldives and Bhutan.
Ram is focused on driving the company’s growth and innovation strategy which includes growing e-commerce and m-commerce payments, growing the acceptance footprint for electronic payments, building out and scaling a payments ecosystem which is secure and reliable, and creating and developing a roadmap towards a less cash society and financial inclusion.
Ram brings a wealth of knowledge to his role, with more than 25 years of experience across banking, Cards & payment products, investments & insurance and Fintech across Asian markets.
Previous Positions Prior to joining Visa in 2015, Ram was the MD & CEO of Aviva Life Insurance in India, and Chairman of Aviva Sri Lanka for six years over which time he contributed to building their India strategy, turned the company to profitability and launched India’s first suite of digital and online insurance products.
Before that Ram was with Citibank for close to 20 years, last serving as the Country Head for Retail Banking. During his time there, he has held diverse positions with increasing responsibility, including in Business Development, Consumer Finance, Marketing, Product Management, as Head of Mortgages & Business Banking, and Head of Credit Cards & Payment Products.
Other Information
Ram has an MBA from the Bharatidasan Institute of Management, and is an alumnus of Columbia Business School’s CSEP Advanced Management Program. He is a regular contributor to magazines and newspapers in the areas of Fintech, Innovation and Leadership, a guest lecturer at several B-schools, and participates as a speaker and panelist in many industry and public forums. In his spare time, Ram is a mentor and advisor to several start-ups and Fintechs, an avid reader and a keen golfer