Introducing traceability in financial transactions will strike a blow against black money

On my views of having a transparent banking system and its future growth in India, I quite liked the views of the author of the below article (Ashok Jhunjhunwala, a teacher teaching electrical engineering at IIT Madras and a member of the PM’s Scientific Advisory Committee) share his views on the same. Some of his views are quite realistic but I'm afraid that the challenges and mechanisms proposed could be easily dented if adequate secure monitoring isn't carried on.
None the less something new for a better tomorrow...
--
Dictators in Tunisia and Egypt have fallen. Internet technologies played their small part in this. India is not like Tunisia and Egypt. Its economy has belied expectations and grows at 8 to 9% year after year. As large sections do not benefit adequately from this growth, there has been considerable focus on government programmes to make it inclusive. At the same time, our press has demonstrated its independence. The RTI Act enables citizens to demand and get information. Our CAG stands tall, just as our Election Commission and courts do. Yet India is in a crisis. Its citizens are tired of governance deficit, corruption, black money and an inspector-raj.

Everyday we see scams (sometimes even when they are not there) being exposed in the media, demonstrations, Parliament jams and court orders. But there is little positive action. What is needed is action against black money, the driver of all corruption. Are we citizens ready to move beyond protests and take a small step that could hit at the heart of black money?

Black money thrives in the cash economy. If we introduce traceability in financial transactions, it will be difficult to hide. We can do this using some simple available technologies. It is possible to carry out all transactions in electronic form, where money is transferred from the payer’s bank account to the payee’s. The back-end core banking system of almost all banks allows that. ATM withdrawals, any-branch banking and Internet banking thrive on it. The Internet, however, is used by a small section. Credit card (and debit card) based payments and transaction could be another way, but have not caught on much (except for use of debit cards for cash withdrawals).

But India has over 750 million mobile phone connections, and growing at 15 million per month. Over 500 million individuals are believed to have mobiles. In a few years, mobile telephony could touch most of India’s adult population. It is now possible to link one’s mobile phone to a bank account. So, it is possible to carry out most transactions including money transfer, bill payments, balance enquiry and checks on past transactions. A bank’s computer uses the caller line identification (CLI) and a customer’s PIN to authenticate her, following which any transaction can be carried out using an application loaded on her phone. End-to-end encryption makes transactions secure. Transactions are instantaneous: for example, any payment is notified by sending an SMS to the payer as well as payee.

The Mobile Payment Forum of India, RBI and National Payment Corporation of India worked with banks, telecom operators and technology providers to make money transfer possible between customers of any two banks, any two operators and any two technology providers. One does not even need the bank account number to make payments, as the payee’s mobile number and a mobile money ID (MMID) uniquely map to her bank account.

Mobile payments would make cash redundant. One could pay a vegetable vendor who displays a mobile number and MMID at the shop. Similarly, auto fare or kirana shop payments can be made instantaneously. Money can be transferred whether the recipient is near or far. Doing so from Mumbai to an Orissa village would now be a simple matter. A single day amount could be small, say Rs 50, or as much as Rs 50,000.
Safe, secure, simple, instantaneous, and with a complete list of payments and receipts in one’s passbook, there is no reason why anyone would not use this method. Using mobile payments instead of cash could be our way to bring in traceability and say no to the black money economy.

Do all banks provide mobileto-mobile payments? About 10 banks do and another 15 will by the end of next month. Will there be teething troubles? Sure, but nothing that can’t be handled. Will transaction charges be too much? Banks and telecom operators can make transactions below Rs 1,000 free and charge one or two rupees for transactions up to Rs 10,000. Will SMS come in real time? Telcos can ensure that.

One may argue that many in rural India and some in urban India do not have bank accounts. With financial inclusion initiatives, no-frill accounts can be opened quickly. In fact, mobile payments would incentivise people to open such accounts. Further, telecom operators are tying up with banks to come up with phone-based pre-paid cards (mobile wallets) for making payments and transferring money as in mobile banking. Will illiteracy be a bottleneck? Several banks and technology providers use mobile voice banking: one just has to speak to carry out a transaction. So, there may be some hiccups, but there are technological answers.

Many of us will remember that computerisation of railway reservations in the 1980s dealt a blow to rampant corruption. As an example of technology being used to bring in transparency, mobile payments give us a much bigger opportunity. In due course, we would demand that government recalls 500 and 1,000 rupee notes and makes it mandatory for all shops and vendors to accept only electronic payments. But let us take the initiative. Let us get our MMID and start making mobile payments instead of using cash. Let shops start displaying their mobile numbers and MMID. That would be a big statement against black money.

- Prasad