NMIMS Global Access
School for Continuing Education (NGA-SCE)
Course: Digital Payments

Internal Assignment Applicable for April 2021 Examination

1. While digital payment systems have made substantial in-roads in a number of countries,
the pace of adoption, growth, and penetration has generally been slower than expected.
For the last several years much of the conversation around lagging deployments has
focused on recalcitrant regulators and financial institutions. Now, attention is beginning

to be paid to understanding the real value—and costs—of digital payment systems for
poor households. Cash is the main way of exchanging value for most poor households
around the world, whereas the use of payments from checks to cards to direct transfers
are much more common at higher incomes. While cash is generally reliable, available,
and cheap in relation to alternatives, it comes with significant risks and costs, often
hidden. Furthermore, while cash is easy to use locally, poor households often need to
transact at significant distances. Using cash, then, requires informal cash transfer
mechanisms, such as bus networks and hawala couriers. Using these mechanisms is
expensive in terms of direct charges, risk of fraud, and the opportunity cost of the time
both to arrange transfers and the delay in the transfer reaching the recipient. By making
cash virtual, digital payment systems ought, in principle, to help people conduct some
important part of their financial transactions at a lower cost while also leaving more of a
financial trail, which might help them get credit or handle business disputes. But
advocates of the theoretical benefits often miss the costs incurred by users. Digital
payment systems usually charge per transaction fees, fees which are far more salient than
the hidden costs of cash. Second, the transition from cash to digital payments does
involves effort and cost for users - from setting up accounts and getting comfortable with
new technologies to the additional mental burden of maintaining two different stores of
value.
Prepare a comprehensive report addressing all of the below questions.
Digital payments may be an important part of closing gaps around financial access. But
how should digital payment systems be deployed? What design elements would create
value for poor households?
What is needed to make digital payment systems valuable and attractive for poor
households?

2. Axis Bank partnered with popular messaging application WhatsApp to process payments.
Bank officials said WhatsApp is currently undergoing integration following successful
beta version trials. The Facebook-acquired app is in the test phase of its payments process
and will be using the Unified Payment Interface (UPI) for processing payments.
Operators such as Google and WhatsApp are platforms through which digital transactions
can be carried out. Their bank partners (like Axis Bank) help them in fund transfers.
WhatsApp has also tied up with ICICI Bank to launch its payment services last month.
Such collaborations are instrumental in providing digital payment services to the
developing countries. While digital payments may be an important part of closing the
financial inclusion gap worldwide. The needs and vagaries of local contexts within
countries make it unlikely that any single company or system can adequately meet

customer demands at an affordable price. The logic behind the use of new technology-
enabled channels in many industries is to move from a vertically-integrated to a

horizontally-layered service delivery model, such that each player is fulfilling a critical
role with appropriate scale and business focus, and several players together deliver the
full range of customer requirements. For instance, many “manufacturing” companies no
longer own any factories but use various technologies to outsource actual production. In
the financial realm, such a horizontally-layered system may be made up of mobile
operators supplying secure messaging services, banks adding complementary financial
services (like commitment savings accounts, loans, and insurance products) to the basic
electronic account proposition; retailers handling cash in/out services; and billers and
other businesses creating additional customer value. In context of the above, answer the
following.
How will business models and partnerships affect the quality and value of digital payment
systems? What should be the structure of contracts, investments, and business models
that will enable Digital Payments?

3. It’s a little over three years since Reliance Jio Infocomm Ltd launched services and
changed the face of the industry with large amounts of data and voice usage limits. The
period has been marked by a huge spike in data usage and voice traffic and a sharp decline
in consumer spends on telecom. Jio has disrupted the telecom sector by stepping in to try
to fill the vacuum left by banks by offering mobile money services, with varying degrees
of success. Unlike most banks, they have a true mass market vocation: well-known brand
that is increasingly relevant for the poor; experience running extensive third-party retail
channels; well-developed low-cost transactional (i.e. prepaid) account platforms; a
deployed base of smartcards (SIM cards) with secure identity elements; and an
increasingly ubiquitous mobile network that can be used for remote real-time transaction
authorizations and confirmations. However, there are a number of factors that have held
other mobile operators back. Most mobile operators do not have well-established service
innovation processes and remain fundamentally a carrier of basic voice and data
connectivity services. They struggle to supply the value added layers on top (content
management, unified communication or business support services, and now mobile
money). Also, most mobile operators develop mobile money solutions primarily to drive
customer stickiness rather than a distinct revenue source, and that leads them to not want
to interoperate their mobile money systems with those of their competitors. They cannot
harness market-wide network effect, which undermines the commercial viability of
individual systems. Banks–and, often, financial system regulators—distrust them, so
many mobile operators find it difficult to forge partnerships to deliver a broader range of
financial services through their mobile money platform.
a. How can regulators balance access, security, stability, and consumer protection in digital
payment systems? (5 Marks)
b. How can electronic payments be an effective gateway to other financial services?