Challenges to RBI ambition of net commerce on feature phones

Recently, Reserve Bank of India (RBI) governor Shaktikanta Das proposed to launch UPI-based payment products for feature phone users. This announcement came when the central bank's Digital Payments Index (RBI-DPI Index) has shown substantial growth of 270.59 in March 2021 on the base of 100 in March 2018 from 217.77 in September 2020.

The RBI-DPI Index comprises of five broad parameters: payment enablers (weightage 25%); payment infrastructure – demand-side factors (10%); payment infrastructure – supply-side factors (15%); payment performance (45%); and consumer centricity (5%). Each of these parameters has sub-parameters, which in turn consist of various measurable indicators.

Amid a rise in digital payments, RBI is looking forward for UPI-based payment products for feature phone users. This proposal has larger connotation, as the prevalent notion that smartphone is the answer to reach financially marginalised population comes under challenge.

In 2020, India had 622 million internet users, of which urban users were 323 million and rural users 299 million. So out of 1,380 million population in 2020, 45% was not using internet, possibly the lower stratum.

According to a study by IAMAI and Kantar, in 2020, all internet users have accessed internet through mobile phones (as per report of TRAI 97% in 2020), whereas 17% went online through personal computers and 6% via other devices. So mobile phone is an important device in accessing internet, which is cheaper than PC as well.

While looking at the same study on activities of the internet users, more than 80% used for social media, communication and entertainment however 45% (39% in 2019) used for net commerce, which goes down to 30% in case of rural. Net commerce means some kind of online transaction. As this article aims to understand the UPI-based payment products for feature phone users and accessing e-commerce is not possible through feature phones, the data on it is not considered and cumulated with net commerce users. Indian smart phone market has recorded a 10 folds expansion from 14.5 million shipments in 2011 to 150 million in 2020. So probably the percentage of increase in shipment of smartphones may not have a positive correlation with usage of net commerce as most of the customers are using it for communications and entertainment.

Just for better understanding, the cumulative number of smartphone shipments is not the same as number of unique smartphone users. Primarily there is no data on multiple phones owned by single individuals. The penetration of fixed broadband connection in India, which is very important for the economy and education, is among the lowest in the world at only 1.69 per hundred inhabitants.

Additionally, according to an Ookla study, in August 2021, the average download speed of fixed broadband connection in India was 62.45 Mbps, while the top-ranking countries, i.e. United Arab Emirates and Singapore, had clocked 262.20 Mbps. In case of download speeds on mobile broadband connections, India stood at 17.96 Mbps however the same top countries were standing at 195.52Mbps.

To summarise, first, the broadband connectivity India is lagging behind. Second, the speed is not at par. Third, the number of net commerce users is very low at 20% of total population in 2020. Fourth, the populace is more comfortable with cash, even amidst substantial growth RBI-DPI Index. Possibly the old net commerce users (also e-commerce users) have escalated their usage. It justifies the drive of RBI, to take the net commerce over and above broadband and internet users.

India has a huge landmass and substantially challenging remote geographies. Data provided by telecom operators to government shows out of 5,97,618 inhabited villages in the country (as per Census 2011), 5,72,551 villages have been provided with mobile and internet connectivity, which is very impressive at around 96%. RBI possibly wants to take advantage of this positive feature.

Despite everything, a point of caution has to be brought in the usage of the feature-phone-based net commerce. Even after providing the technology, whether the target population will use it or not may emerge as a major concern.

First, net commerce needs a bank account and availability of money in it. Even in the case of digital wallets, the money has to be loaded in it, possibly through business correspondence network. Indian economy is informal and cash-based. In FY18, cash in circulation as percentage of GDP was 10.7% (or ₹18,30,000 crore), increasing to 14.5% (₹28,50,000 crore) in FY21. It ratifies the confidence of the people in cash, so ingraining the practise of net commerce will definitely take time.

Second, observations validate users of smartphones are more tech savvy than feature phone users, where regularity of their usage of different applications escalate their comfort. Smartphone users are probably easier targets to shift them to net commerce. So feature phone users need way more hand-holding to start using net commerce.

Third, in order to attain the objective of bringing feature phone users to net commerce, government needs to develop public private partnership and invest substantially in the repeated capacity building and develop last mile agents for hand-holding. BC agents and microfinance loan officers will be the most efficient cadres for this work.

Fourth, as per government data, India’s mobile network has wider reach. Even more than 95% of the villages are covered, but the quality of the connection is very poor in many areas. In case of net commerce, there is a need for strong connectivity. Government needs to invest substantially to make the connectivity strong.

India now has a population of 1,391 million, with diverse social, financial and educational backgrounds. One blanket approach for all may not work. In order to facilitate inclusive growth, different approaches have to be adopted and efficiently implemented. In the past we have seen government promote many schemes, some of them had seen success, some failed and some had been revised and re-adopted in different ways. However, the endeavour has to be started, efforts have to be put in.