Digitizing transit payments key to a cashless economy

Inconvenience irritates consumers and leads to loss of business. But that’s where the next big opportunity for fintech innovators is.

Most Indians are hassled by long queues at ticket counters, toll plazas, bus stops, petrol pumps and even at parking stations to purchase tickets; taking the wallet out, counting the currency, and more often than not getting the due back because the person at the counter doesn’t have the ‘change.’ To replace these cash payments — which are typically micro-ticket sized ranging from Rs 5 to Rs 250 — with a digital medium has long been a challenge that India and its payments ecosystem has failed to resolve.

But the first shot has been fired — all payments at the national highways have to be done through the so-called Fastag, a mechanism where payments are done electronically.

It has been a well-documented fact that cash comes with a cost. These costs for the operation of mass transit systems can be the costs of handling the currency across the spectrum. The state is the biggest loser with cash being a convenient tool to evade tax. “If you really look at the development of mass payments across the globe and specifically Asian markets such as Japan and Singapore you can find parallels in the journey with India because the cash usage has been high because of similarities in culture,” said Naveen Surya, chairman emeritus, Payments Council of India. “Transit (payments) has been actually the real big product innovation that drives mass adoption of digital payments.” Japan and Singapore have made great strides in electronic payments for transit.


For long the lack of technology and a conservative regulatory regime stalled adoption of mass transit payments. For example, several attempts through the previous decade to create a semi-closed-loop card for Delhi Metro by banks failed as there was little scope beyond that to profit from it.

The absence of a revenue model for both acquiring and issuing participants and the closed nature of these solutions have been major deterrents for the creation of a truly interoperable mass transit solution for Indian commuters.


Kochi metro is doing a test-run using NPCI’s National Common Mobility Card (NCMC) which is a semi-closed-loop prepaid instrument for daily commuters similar to the ‘Tap N Go’ cards used by commuters at London’s globally renowned suburban metro network ‘tube’. A similar pilot project has also been undertaken by a leading lender for the Bengaluru metro.

“The NCMC is the most elegant solution for digitizing the mass transit payments. The convergence of various transit systems for NCMC acceptance will provide a boost to mass transit payments,” said Akhil Handa, head, fintech and new business initiative, Bank of Baroda. “We are also working on these and have in fact already got NCMC certification for issuance and acceptance infra from the regulators.”

The NCMC is a new specification of a card to be used for mobile payments which can be adopted by multiple schemes. As envisioned by the regulators, the card has two instruments on it -- a regular debit card which can be used at an ATM, and a local wallet which can be used for contactless payments. Such low-value prepaid cards are already in use in countries like Japan, Malaysia, and the UK.

However, the scale can only be achieved once a reasonable business model is developed. The merchant discount rates or MDR, even if applicable on these cards would be very low because of the micro nature of the ticket sizes.

The key challenge will be to get transit systems to accept these cards as they have existing contracts for collections on the ongoing projects. On the issuance side, existing debit cards will have to be upgraded to support the contactless standards. Industry experts point out that to replace cash, convenience also needs to be emulated.

Mass adoption of transit payments can happen “by allowing the creation of a limited wallet with no KYC” on these cards, the Nandan Nilekani committee on digital payments said. The solution could be making these instruments open-looped, it said.

“To popularise the card, acceptance at locations other than transit may also be considered. The committee recognizes that for high-frequency, low-value use cases, users will want many of the same qualities as cash and will not want their transactions to be tracked,” the committee recommended.

The Reserve Bank of India has already taken steps for the adoption of a common mobility card. In December it has enabled banks to issue ‘low KYC PPI’ wallets with a monthly usage limit of Rs 10,000.

“Mass transit payments are typically the largest prepaid category across the globe in terms of mass retail payments,” said Surya who points out that in several markets digitization of transit has led to a digital transformation in other payment categories such as merchants. “In terms of scope, it is larger than anything we’ve tried before. Even customers with inactive bank accounts due to low balances would find the use of this as everyone uses low-cost public transport.”

Technology such as tokenization and near field communication (NFC) is encryption-based contactless payment solutions that enables consumers to replicate their cards on smartphones increasing security and enabling the interoperable nature of these transactions.

“Micropayment is harder to digitize as the convenience of cash hasn’t been replaced yet. But even with cash, inconvenience comes when there is change involved,” said Mahesh Patel, chief technology officer, AGS Transact. “We feel that NFC is the solution as two-factor authentication (2FA) is not required because the smartphones are password-protected, unlike contactless cards.”

While innovations are aplenty, bypassing India’s notorious bureaucratic roadblocks is a challenge.

Even in the National Highway Authority of India’s Fastag project, mass adoption happened after a regulatory diktat. But it is a part failure since it isn’t accepted in city toll roads. If inconvenience persists despite the diktat, there’s an opportunity as the government pushes digital payments.

News Source: Economic Times, Url: https://bit.ly/3aulu0A

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