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India has taken another step towards becoming a cashless economy, with the Union Cabinet approving a range of measures that includes doing away with the service charge on card-based and other digital payments.
These steps will accelerate the transition to mobile payments in the second-largest smartphone market in the world, with a billion mobile phone connections, but where only 0.3 percent of the working population uses mobile money.
The government’s measures, some to be implemented within a year and others within the next two years, will also include actively discouraging cash payments beyond a threshold and increasingly promoting digital payments by making such methods the most convenient and secure, the government said in a statement on the Press Information Bureau’s website on Wednesday.
Digital payments will be “instrumental in reducing tax avoidance,” according to the statement, and as the government itself migrates payments and collections to cashless mode, the shift towards the cashless economy is expected to accelerate.
“The essential features of the proposals for promotion of payments through cards and digital means include steps for withdrawal of surcharge/service charge/ convenience fee on card/ digital payments currently imposed by various Government Departments/organisations,” the government said in the statement.
To facilitate all this, the government will introduce appropriate digital payment options across the organization, “rationalise” merchant discount rates and telecom service charges for digital financial transactions. It will promote mobile banking and create the necessary mechanisms to prevent or resolve fraudulent transactions.
By May this year, India had over 21.4 million credit cards, but more than 570 million debit cards, according to data with the country’s central bank, the Reserve Bank of India.
That compares with close to 20 million credit cards and 441 million debit cards in October 2014.
A nascent mobile wallet and other digital payments ecosystem in India is growing on the back of the 250 million Internet user base in the country, expected to double in the next few years. These payments services providers are also eyeing the larger financial services opportunity in the country as more small businesses and startups look for relatively small, but quick loans needed to help their rapid growth.
That market could be as large as $150 billion, by some industry estimates, and digital payments will help it take off.