Digital Payment Is OK, but Why Should Private Sector Earn Profit?

Endorsing cashless India is fine, but government shouldn’t support private players at the aam aadmi’s expense.

Representational Image (Photo: iStock)

A democratic government, in Abraham Lincoln’s words, is “of the people, by the people and for the people”. So, going by this statement, the government should not promote any activity which could be profitable for a third party.

In simple words, the Government of India shouldn’t tell the public to buy a particular brand of product or engage in a particular activity which could bring profits to a private entity. But by promoting digital transactions, the Modi government is doing just that.

Moving Towards a Cashless Society

The past few months in India have witnessed heated debates over Prime Minister Narendra Modi’s decision to deprive Rs 500 and Rs 1,000 currency notes of their status as legal tender.

The stated aims of the move continuously changed and converting India into a cashless society later emerged as one of the most important aims. The government has since been encouraging the public to undertake digital financial transactions rather than use currency notes.

Nobody can argue against the merits of digital financial transactions. But by promoting a cashless Indian society, the central government may have entered into a grave conflict of interest because such a shift is most beneficial for private-for-profit entities.

Cashless Transactions Benefit Private Firms

In India, issuance of currency notes is the domain of the Reserve Bank of India. For simplicity, let’s assume the RBI and the central government to be one. Minting of coins and printing of notes are undertaken by the government, which bears the expenditure of doing so. Whatever the cost of printing, a currency note can be exchanged at face value, without any over and above transaction charges. If a person purchases groceries worth Rs 500, he or she pays for it with just Rs 500.

There is no transaction charge to either use or receive a currency note. The government doesn’t derive profits out of cash transactions even though it pays for the currency notes. It can be said in crude terms that cash transactions are conducted at the behest of the government.

Now, unlike cash transactions, cashless payments are not conducted at the behest of the government but by private-for-profit entities. At best, the government can regulate digital transactions. Almost every cashless transaction made today benefits some for-profit entity.

Digital Wallets Making a Killing

Digital transactions are initiated by one party to pay for goods or services purchased from the second party. They can be carried out using bank accounts, debit or credit cards or digital wallets. Note that in digital financial transactions, the ease of payment and acceptance also plays a pivotal part.

Digital wallets, like Paytm and Freecharge, are extremely easy to use and can be employed in smaller daily transactions as well. The most widely used and accepted digital wallets like Paytm and Freecharge are private companies and intended to derive profits. So, a rise in wallet deposits and transactions gives the owning companies profits. E-wallets also control payment gateways and levy a transaction charge on merchants receiving payments from consumers.

The government doesn’t directly own any digital wallets or payment gateways though some public sector banks do. However, public sector banks are also for-profit entities. Effectively, the government promoting digital wallet transactions is in the interest of the private companies and banks.

Point-of-Sale Terminals Dominated by Visa and Mastercard

Coming to debit and credit cards, all banks issue these plastic cards which can be swiped at point-of-sale terminals. However, the network for card-based transactions is largely controlled by Visa and MasterCard, both of which are private companies. Every major bank issues cards which are backed by either Visa or MasterCard.

Again, on every transaction, the receiving party has to pay a Merchant Discount Rate, which means if you purchase goods worth Rs 5,000 and pay with a Visa or MasterCard card, the merchant doesn’t receive Rs 5,000 but an amount slightly lesser than that. Visa and MasterCard stand to benefit from every card transaction made.

Digital money transfers between bank accounts can be made through NEFT, IMPS or RTGS. Any person initiating a transfer has to pay a charge for all of these three services.

Also Read: They’re Watching! Cashless Or Caged? What Note Ban Really Means

Can’t Force People to Use Private Services

Digital wallets, payment companies and gateways, and card networks all derive revenues by levying charges on one of the parties in a transaction.

If a private company like Paytm or Visa offers its services, people are free to opt for them out of their own will. It’s a free market. However, for the government to go out of its way and exhort people to shift to digital money is outright unethical.

Wouldn’t it be plain ridiculous if the government encouraged the public to prefer air travel over railway travel after discontinuing a majority of the train services? What the central government is doing now is quite similar. If a person is willing to pay more and travel by air because of some benefits, it is entirely up to him or her.

If a merchant uses a PoS swiping machine and is willing to pay the MDR, it is completely his or her decision. But to force or encourage them to do so is unfair and that too after sucking out 86 percent of the cash in the system.

The argument that digital transactions leave a trail and hence help the government is keeping track of illegitimate transactions doesn’t hold much water. Of course, digital transactions help in that respect but the common man shouldn’t be made to pay for it while private companies benefit. That their profits have increased manifold because of government actions is quite evident from data before and after the 8 November announcement. Not many people might be talking about this but the government has just massively helped a lot of private companies fill their pockets with the common man’s money.

(The author is a digital marketer in the product SaaS industry and a former journalist. He can be reached @AmarTejaswi. This is a personal blog and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)

Also Read: Strengthening the Digital Push: 5 Ways India Can Go Cashless