Hyderabad:The US had universalized cashless payments through the use of credit and debit cards. People in China have been using digital-wallets and QR codes to take care of payments, be it buying goods on e-commerce sites, online or eating in crowded restaurants!!
Already around 83 million people have started using their smartphones and social media apps to make digital payments. Most astonishing is that the beggars in China are also using QR Codes to accept alms from public! Such is the extent to which digital payment growth is happening in China.
Media giants such as Alibaba (China’s Amazon) and Tencent (China’s Facebook) are occupying the banks' position as payment gateways. While retailers pay 0.5% to 0.6% processing fee to the Chinese banks on payments made through credit cards, it is just 0.1% processing fee on payments made online through mobile wallets. This is why over $ 12.8 trillion of digital payments were made last year through Alipay (Alibaba) and WeChatPay (Tencent) apps .
China accounts for half of all digital payments in the world today.
A boon to Africa
The cashless online payments revolution launched by China is rapidly expanding in Africa, where banking facilities are scarce. In Africa today, 4G networks, smart phones, mobile payments are rampant because of the investments and technology brought in by China.
In India, for the first time in October of this year, cards were traded lesser than the Unified Payment Interface (UPI) payments. Bangalore (at 38.10%) tops digital transactions with Google Pay, PhonePay and Bhim, among other cities, followed by Hyderabad (12.50%) and Delhi (at 10.22%). These figures were revealed by Bangalore- based Payment Gateway – ‘RazorPay’.
Though Alibaba and WeChat Pay apps are replacing banking services, these two mobile wallets are still linked and work synchronously with the respective user bank accounts. US-based company Facebook is several steps ahead of its plans to launch its own digital-crypto currency, ‘Libra’, in 2020 , regardless of the original banks and local currencies.
China is also following in these footsteps by trying to bring in a digital currency through its Central Bank, on par with ‘Libra’, perhaps the currency will make its debut in the mid- 2020. Earlier this year, JP Morgan Chase & Co., (JPM), the world's top bank in market capitalization, also jumped into the competition, by launching its very own crypto currency – ‘Coin’!.
The currency is based on block chain technology, which is used by bank account holders to transfer funds at lightning speed.
How does 'Libra' work?
Facebook, on the other hand, aims to convert Libra into an international digital currency. But if China is to step up in digital payments, Libra will face resistance from the banking sector and regulatory bodies in the US and Europe.
Libra is a crypto currency. All crypto currencies are digital currencies, but not all digital currencies can be cryptos!!. Libra can be safely and quickly transferred from any corner of the world with no fee. Libra's value does not fluctuate as much as the crypto currency - bitcoin. Depreciation is based on the dollar, euro and yen.
When someone buys Libra, its equivalent is deposited in a bank account in the form of dollars, yen and euros. Interest on these deposits also comes. In order to convert Libra back into dollars and euros, the Facebook app 'Calibra' will pay for the exchange rate.
Libra operates under the guidance of a non-profit organization in Switzerland. When Libra comes into force, any company can make wallets with this digital coin. Facebook, its messenger service and WhatsApp have over 270 million users worldwide. They all want to transform Libra into a digital currency that helps pay, invest, and lend digitally.
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Facebook Pay was first launched as a payment services platform. Payments can also be made through Facebook affiliates such as WhatsApp, Instagram and Messenger. WhatsApp recently launched an experiment on digital payments in India. 100 banks and financial institutions have been made members of the Libra community.
JPMorgan Chase, the largest bank in the Western world, is also expected to join the association, but the company has come up with its own digital currency called JPM Coin. It is quite a big blow to the MasterCard, Visa, PayPal and EBay to deviate from the Libra project. Uber and Spotify only accept Libra payments.
There have been suspicions that Libra could be used by criminal gangs for drug trafficking and the wealthy to smuggle illicit money. There is concern about consumer rights and financial stability. It is with these fears that France and Germany are not allowing Libra to enter Europe, and instead of the private digital currency, Libra, it plans to move the crypto currency through the government. It is unlikely that Libra will be released in June 2020 in such an environment.
Check to Dollar dominance
China, meanwhile, is preparing to release its own crypto currency, the central bank's digital currency. The dollar's dominance as an international reserve currency could be jeopardized if it is so tight. In particular, emerging countries like Asia, Africa and Latin America may switch from dollar to the international Chinese digital currency. As it is, China and the US are high on competition in commercial trading, introduction of 5G services, hi-tech sectors etc., This competition will now expand into digital currency.
The Bank of England also warned that China's digital currency is in anticipation of turning into an international currency resulting in replacing all the international trade that is being done in dollars till today. If America and Europe do not allow Libra, then Facebook can launch its digital currency in Africa, Latin America and Asia.
72% of consumer transactions in India are still in cash. This is more than double when compared to China. Retailers are still reluctant to switch to digital transactions because of the lack of internet access in the villages. Therefore, per capita digital transactions are still in an emerging stage in India. China recorded 96.7 per capita cash transactions in 2017, as compared to 22.4 in 2015 in India .
Although Prime Minister Narendra Modi's government abolished big banknotes in 2016 to promote a cash-free economy, the use of cash has not decreased in the last two years. Currently, 10 million Indians are using the UPI services for digital payments. However, the Chief Executive Officer, Dilip Asbe states that it is targeted to have atleast 50 million users of digital payments, in the next five years.
While PayTM has already partnered with Alibaba Group and is already widely used in India, Facebook has decided to expand payments through WhatsApp. Even Ratan Tata's personal investments are made in PayTM.
China with its financial trading, Facebook and other private payment gateways are trying to compete with the domestic apps such as BHIM. India needs to be ready to face a tough competition and also come out as a winner, in the near future in order to turn India's 130 crore population into cashless transactions.
The country should strive to not be lagging behind in the coming digital economic age. As India realizes this, it is gearing up to provide international receipts and payment services through its BHIM UPI. An experimental payment transaction was carried out in this regard at the recently held Singapore FinTech Festival.
India gearing up at a fast pace
India is stepping up towards a cashless digital economy. AliPay and WeChatPay are the two payment apps that dominate the Chinese market, while India has 87 apps such as Google Pay, Amazon Pay and PayTM. Unlike China, there are more opportunities for upcoming and startup financial service providers.
Digital payments in India have increased fivefold since 2015. Working under the umbrella of the National Payments Agency of India (NCPI), UPI enables instant mobile payments. UPI has launched digital payments by linking various bank accounts with payment apps. Yet, India still has a long way to go when it comes to cashless payments, if it has to leave a mark in the global cashless market!!
