Earlier this year, this tweet from 'Simple' the new age bank, popular amongst millenials in the United States caught my eye.
How many checks would a checkbook check if a checkbook could check checks? Well, 25 checks to be exact. What does this mean? It means paper checks are officially here!! Get yours for $5 right in the app or online. pic.twitter.com/EsdPkyU4Gc— Simple (@simple) May 7, 2019
I had a good laugh. US$5 sounded like a ridiculously excessive charge for 25 cheques. Every single bank account I have ever had in India, yes even the one I had as a student with miniscule minimum balance requirement, gave me 25 cheques every quarter for no extra charge at all. Though I must admit that I have only ever used cheques to cancel them and hand them over to financial institutions, schools or employers as a means to share my bank account details. I have not yet exhausted the initial set of 25 cheques I got from my bank for my newest bank account that I opened in 2016.
This made me wonder whether anyone still uses cheques in India and if so for what purpose. My very unscientific Instagram based survey yielded the following results.
This made me wonder whether anyone still uses cheques in India and if so for what purpose. My very unscientific Instagram based survey yielded the following results.
Just as I suspected, more than 65% of the respondents reported not using cheques at all in the last six months while of those who do use cheques, more than half use it for rent payments and to share bank account details using cancelled cheques.
This prompted the question why was a new age bank in the United States offering cheques to its customers? Surely no one in the land of the silicon valley would have any use for cheques - or as they would spell it - checks, right?
Turns out that Simple's move to offer paper cheques was coupled with it discontinuing a service called 'bill pay'. A startup bank not allowing you to pay bills? Something does not appear to be quite right. Ability to pay bills online is a service which even the public sector banks in India offer despite being (in)famous for not-so-great online banking portals. The mystery was unravelled when I found out what innocuous sounding "bill pay" actually was -
Turns out that Simple's move to offer paper cheques was coupled with it discontinuing a service called 'bill pay'. A startup bank not allowing you to pay bills? Something does not appear to be quite right. Ability to pay bills online is a service which even the public sector banks in India offer despite being (in)famous for not-so-great online banking portals. The mystery was unravelled when I found out what innocuous sounding "bill pay" actually was -
We know it may seem like we are taking a step back in time, but when you use online bill pay, you are technically sending a check to the recipient. Paper Checks will put you in control - we will make sure your funds are safely tucked away, and ready to use via Expenses. ^RC— Simple (@simple) May 19, 2019
I kid you not. When a customer selects "bill pay" online on a bank website or application, the bank (including until recently this new online only bank) writes a physical cheque and sends it by snail mail to billers who then presumably take that physical cheque to their own bank to deposit it.
I could not in a million years have imagined that the utilities and banks in the United States would be using a system so primitive and inefficient. However, it so appears that the entire payment ecosystem in the United States is no match for what we have in India. On Instagram, 104 of my followers reported paying bills by truly online modes (such as UPI, wallets, net banking) as opposed to just 1 who reported paying by bills by cheque.
Be it for payments to merchants or to friends, today I have atleast three digital options in India - UPI, wallets and NEFT - all of which are free to use. Further with UPI (Unified Payments Interface) the transfer is instantaneous and can be initiated quickly not only online but also at any local shop due to the now ubiquitous payment QR codes.
If I am paying a friend, I just input his/her UPI ID on my UPI app (I use GPay but my friend could be using any other), I initiate a transfer, I enter the authorisation password and that is it. Within less than five seconds I get an SMS saying that the money is deducted from my bank account and my friend gets an SMS saying it is deposited into his/her. Though I feel silly typing this out, I just want to emphasise that instant in India really does mean instant.
Compare this with Venmo, which arguably is the most popular payment tool in the United States. While Venmo to Venmo payments are instantaneous, sending money from Venmo back to a bank account takes 1-3 DAYS! You would think that it is a great development then that this August, Venmo has started offering an 'Instant Transfer' option ...
...but "instant" for Venmo means thirty minutes and for that privilege you need to pay Venmo a massive 1% fee which seems absolutely ridiculous to my Indian brain used to truly instantaneous and free transfers.
Infact, with the tremendous competition between UPI service providers like GPay, and PhonePe, the Indian consumer is spoilt for choice with not just free transfers but expectations of cashbacks. While there are many fair criticisms of venture capital funded cashbacks, the basic premise that the user should be rewarded for using a digital payment method rather than an administratively cumbersome cheque or MDR heavy debit card or credit card, is a sound one.
I also hear from my friends living in the United States that merchants or outlets accepting digital payments such as Venmo are nowhere as ubiquitous as in India (or atleast Mumbai) where nearly every shop and restaurant has a QR code allowing UPI users to scan and pay directly from their own bank account to the merchant's bank account.
So it is time now to add 'great payment systems' to the list of awesome things in India that are unheard of in the United States (other items on the list are water in the toilet and requiring a permit to buy a handgun).
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Parting thoughts
1. While UPI will never kill the credit card because it does not offer credit, it is entirely likely that UPI may make debit cards obsolete. If this State Bank of India initiative succeeds I think other banks could follow soon.
2. I hope NPCI takes Rahul Matthan's advice and makes UPI international. Not only will it be able to provide truly instant transfers to the Americans, it would have the added advantage of stopping Facebook's Libra in its tracks.
3. The simplest justification for the United States not having sophisticated digital payments systems is that nobody there wants to pay using anything other than physical plastic credit cards / debit cards. But even for cards, the systems used in the United States are incredibly primitive. See this video for a simple explanation.
Be it for payments to merchants or to friends, today I have atleast three digital options in India - UPI, wallets and NEFT - all of which are free to use. Further with UPI (Unified Payments Interface) the transfer is instantaneous and can be initiated quickly not only online but also at any local shop due to the now ubiquitous payment QR codes.
If I am paying a friend, I just input his/her UPI ID on my UPI app (I use GPay but my friend could be using any other), I initiate a transfer, I enter the authorisation password and that is it. Within less than five seconds I get an SMS saying that the money is deducted from my bank account and my friend gets an SMS saying it is deposited into his/her. Though I feel silly typing this out, I just want to emphasise that instant in India really does mean instant.
Compare this with Venmo, which arguably is the most popular payment tool in the United States. While Venmo to Venmo payments are instantaneous, sending money from Venmo back to a bank account takes 1-3 DAYS! You would think that it is a great development then that this August, Venmo has started offering an 'Instant Transfer' option ...
...but "instant" for Venmo means thirty minutes and for that privilege you need to pay Venmo a massive 1% fee which seems absolutely ridiculous to my Indian brain used to truly instantaneous and free transfers.
Infact, with the tremendous competition between UPI service providers like GPay, and PhonePe, the Indian consumer is spoilt for choice with not just free transfers but expectations of cashbacks. While there are many fair criticisms of venture capital funded cashbacks, the basic premise that the user should be rewarded for using a digital payment method rather than an administratively cumbersome cheque or MDR heavy debit card or credit card, is a sound one.
I also hear from my friends living in the United States that merchants or outlets accepting digital payments such as Venmo are nowhere as ubiquitous as in India (or atleast Mumbai) where nearly every shop and restaurant has a QR code allowing UPI users to scan and pay directly from their own bank account to the merchant's bank account.
So it is time now to add 'great payment systems' to the list of awesome things in India that are unheard of in the United States (other items on the list are water in the toilet and requiring a permit to buy a handgun).
---
Parting thoughts
1. While UPI will never kill the credit card because it does not offer credit, it is entirely likely that UPI may make debit cards obsolete. If this State Bank of India initiative succeeds I think other banks could follow soon.
2. I hope NPCI takes Rahul Matthan's advice and makes UPI international. Not only will it be able to provide truly instant transfers to the Americans, it would have the added advantage of stopping Facebook's Libra in its tracks.
3. The simplest justification for the United States not having sophisticated digital payments systems is that nobody there wants to pay using anything other than physical plastic credit cards / debit cards. But even for cards, the systems used in the United States are incredibly primitive. See this video for a simple explanation.
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