Interoperability key to digital revolution
This is a long overdue intervention for ensuring efficacy of digital India campaign. While benefits are many, a robust payment system is a must to ensure all beneficiaries stand to gain
Digital revolution in India evolved keeping user experience as the focal point. With multiple products offering similar services in a particular segment, customers are tempted to use these products interchangeably. One of the ways to facilitate this is by making these products interoperable.
As per notifications released by the Reserve Bank of India (RBI), interoperability largely deals with the ability of a customer to seamlessly use instruments within a certain segment.
In fact, the impact of interoperability will not be limited to easing consumer experience; it will have broader paybacks for other actors in the digital ecosystem, including merchants, banks and the regulator itself.
Not only is interoperability expected to provide additional revenue streams to the above mentioned participants, it will also help players achieve economies of scale and cost efficiencies.
One of the early success stories is the launch of BharatQR code. Around 1.5 million shops are expected to fall into the BharatQR network. India is the first country to achieve payments interoperability through BharatQR.
However, the slight that keeps interoperability from thriving organically is the risk of players diluting their propriety.
Understandably, actors on the supply side of the digital ecosystem are confound between additional revenue from interoperability and exclusivity. This prevents the industry from moving towards interoperability and imposes responsibility on the regulator to shape the environs.
Taking cue from the banking sector, which has witnessed compounded ratifications from interoperability, the regulator will need to set standards and operating procedures for all players in a
particular segment. Unlike the banking system, where directives and practices were predominantly staple, the digital ecosystem has thrived on innovation and the ability of ideas to break the norm. Obviously, it is an uphill task to set standards in this space without stifling innovation.
Data sharing: Interoperability should not be seen from a fractured perspective of having interoperable wallets or interoperable banks. In its truest sense, interoperability should make every platform interoperable in a segment.
For example, an ICICI wallet should be interoperable with SBI and both of them should be interoperable with Oxigen wallet.
The RBI can initiate the process from where every customer starts sharing Know Your Customer (KYC) details. We have been embroiled in the
long-drawn debate on whether companies should be engaged in the business of sharing customer details or should they protect the privacy of their customer?
It is a customer’s world after all and there is no way we will be able to convince customers to sign-up to such a collaboration. It is also impossible for systems to be interoperable without accessing the account in question.
Follow the banking template, and trace the footprint established by ATMs towards achieving interoperable kiosks.
Pricing: Interoperability in ATMs came at a price which the customer was willing to pay due to physical barriers and cost of access. In the digital ecosystem, there are negligible barriers and costs to access a platform.
For example, an SBI account holder accesses an ICICI bank ATM because he needs cash and the cost associated to access an SBI ATM would include both effort and time.
On the contrary, when a customer discovers that his/her supermarket is not accepting the payment instrument installed on his/her phone or giving a cashback on another wallet, he/she immediately downloads the wallet required, loads just the requisite amount of cash and fulfils his/her obligations.
He/she may choose to sign-out of the wallet or keep it for posterity, depending on his/her experience. Then, the moot question is: Who will bear the price of interoperability?
Market consolidation: In an event of complete interoperability between prepaid instruments, all companies would want to maximise customer acquisition and retention. They will be forced to offer deep discounts to increase longevity of customer base which is unsustainable. Furthermore, they will begin to innovate the product portfolio and differentiate themselves from their peers.
In a regulator-driven interoperable ecosystem, there are bound to be limits on innovation. This will bring them back to aggressive marketing, scheme dole outs and too good to be true offers.
Burning cash to sustain business will only benefit the customer. Only those with deep pockets will survive.
The digital marketplace in India is far from perfect across various segments. As per an AC Nielsen survey, three payment applications dominate 82 per cent of market share. So, the issue at hand is not limited to drafting standard operating procedures but to also ensure that big players are incentivised, yet not favoured.
Notwithstanding these concerns, going by the positive spill-overs of interoperability in the banking industry, portability in telecommunication and enterprise agnostic Point of sale (POS), stakeholders in the digital ecosystem, including Fintech and even stock exchanges for that matter, should create, collaborate and coexist.
(The writer is Associate Fellow, Pahle India Foundation)
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