ADCs: growing use

The year 2018 might later be remembered as the year digital payment channels really broke through. The central bank’s latest Payment Systems Review (Jan-Mar quarter) shows phenomenal growth in many of the alternative delivery channels (ADCs) for banking services. And this goes well beyond the ATM channel, which has become a ubiquitous channel over the years.

The real thrust has come from mobile banking (MB). Their Jan-Mar transaction mix had grown more than four times over same period last year to achieve 5.9 million transactions worth Rs113 billion. Both intra-bank and inter-bank fund transfers lead the way here. During the year ending March 2018, MB users had nearly doubled to 3.11 million. Since only 20 (out of 45) banks provide this service, there is room for more growth.

Next up is Internet banking (IB). During the quarter, 8.4 million IB transactions worth Rs333 billion took place, a yearly growth of 24 percent and 30 percent, respectively. Inter-bank funds transfers were the driving force. As of March 2018, IB users had grown 24 percent over last year to reach 2.88 million, which can grow more if more than 26 banks offer this service to their clients. IB transactions are inching close to a quarter of ATM transactions by value, but they happen to be three times bulky.

The point-of-sale (POS) transactions have also done well in the quarter under review. Transactions have grown by a yearly 34 percent in terms of volume (18 mn) and 29 percent in terms of value (Rs86 bn). But the banks can do better here, as only nine of them offer POS service. The number of POS machines increased by just 655 in the year ending March 2018 to stand at 53,509.

What really impressed this year is the growing use of plastic cards for e-commerce transactions. During the Jan-Mar quarter, two million e-commerce transactions worth a total of Rs11 billion flowed through the system – a yearly growth of 150 percent and 80 percent, respectively. From 496 in March 2017, e-commerce merchants registered with banks had gone up to 1,023 as of March 2018.

Cumulatively, between April 2017 and March 2018, Rs34 billion worth of e-commerce transactions took place via debit and credit cards.

If one takes the cash-on-delivery (COD) settlement mode at even 70 percent of the overall transactions – some estimates put COD at over 90 percent, but it is likely to have come down as digital payments grow their share – then the local e-commerce scene has already crossed a billion dollar in sales.

Be that as it may, the penetration of ADCs like debit cards, credit cards, POS machines, IB and MB remain low, when compared on a per capita basis to regional markets like India. Key is to increase the number of bank accounts from the current tally of 49 million through digital transaction accounts. Meanwhile, it is important for the regulator to stay vigilant to keep users’ trust in digital banking platforms.