Government writes to banks on patchy PoS numbers

BENGALURU: The government has written to banks highlighting their dismal performance in deploying point of sales (PoS) terminals to promote cashless transactions, having achieved only 44% of last year’s target by the end of January.
While 41% of the target was attained in the northeast, in the rural areas it was worse at 16%, a key official in the Ministry of Electronics and Information Technology (MeitY) said in a letter addressed to top executives of banks.

“All banks were allocated the targets of 20 lakh physical and mobile PoS deployment in FY 2018-19. However, only 44% of the target has been achieved till January 31, 2019,” the official said in the letter, a copy of which was reviewed by ET.

The government now wants 40 billion digital payments to be done in the country in the current financial year, bumping up last year’s target by more than 33%. To achieve this, banks have been mandated to deploy 8.5-million PoS terminals across rural areas and the northeastern states.

For digital transactions, the government includes IMPS (Immediate Payment Service), NEFT (National Electronic Fund Transfer), UPI (Unified Payments Interface), micro ATMs through AePS (Aadhaar-enabled Payments), auto debit transactions through NACH (National Automated Clearing House) and toll payments through NETC (National Electronic Toll Collection). It also calculates transactions reported by mobile wallets such as Paytm, MobiKwik and FreeCharge.

“MeitY has set an overall target of 4,019 crore digital payment transactions for FY20. Of this, a target of 3,411 crore digital payment transactions is allocated to banks,” the official said in the note dated March 29.

“Digital payments continue to be primarily an urban phenomenon even now. Though a few players have made inroads in the hinterland through QR codes, the percolation to tier-III and IV locations has been very slow,” said Bhavik Hathi, MD at consultancy firm Alvarez and Marsal.

These targets have been set even though last year’s goals were missed, banking officials told ET.

The total number of digital transactions recorded stood at 26 billion at the end of March 2019 against a target of 30 billion, according to provisional data on the Digidhan website run by the ministry.

This is the third year in a row that the government has set a target for digital payments, with the first of 25 billion announced by finance minister Arun Jaitley in 2017. None of the targets has been met. “One of the major challenges in digital payments is the lack of efficient technology infrastructure,” said Harshil Mathur, CEO of Razorpay, a payments company. “The lack of financial literacy, high cost of banking services and excessive regulatory requirements are a few of the key constraints in the growth of the industry.”

Industry experts told ET that even with the popularity of UPI, digital payments are primarily used for person-to-person transfers and merchant payments are still predominantly cash based. “Innovations like UPI 2.0 should help merchants design business models around UPI. Even standing instructions, which were held back by the central bank, could have helped in driving more merchant payments the digital way,” said Ashish Ahuja, Chief Business Officer of Fino Payments Bank, which is among the top four banks in terms of number of digital payments.

The government’s move to promote deployment of payment acceptance modes across QR codes, traditional as well as mobile PoS terminals along with wallets is an indication of the way ahead for the sector.