India’s Digital Payments Journey: An Overview Of This Decade, 2020 And Beyond

The last ten years for the payments industry in India have been vibrant, disruptive and innovative. We have witnessed a phase where the government, regulator, banks, service providers and even consumers encouraged and adopted digital payments at a pace never seen before. The transformative journey of banks and other players offering traditional services in brick and mortar-like retailers to embracing a mobile-first approach has been spectacular. The usage of cards, UPI and digital wallets, as well as other payment channels, has skyrocketed and the overall acceptance infrastructure is on the rise. 

A new set of banks like small finance banks and payments banks have emerged catering to the bottom of the pyramid and this has provided a fillip to the financial inclusion agenda. A shift to digital payments has also been fuelled by the unprecedented growth in the number of Fintechs in the country.

Specifically, it’s worth acknowledging the efforts of the National Payments Corporation of India in building the payments infrastructure and launching initiatives like Unified Payments Interface (UPI), IMPS, Bharat BillPay, National Common Mobility Cards, Electronic Toll Collection through FASTags and BQR based payments among others.

Although we are far from getting there, the idea of creating a digital economy has become attainable especially in the years following demonetization.

Statistics confirm that new payment instruments have redefined the way customers and businesses do routine transactions. Currently, debit and credit cards in circulation are close to 900 million. Simultaneously, UPI is backed by over 140 banks along with global and local third-party players and is managing one billion transactions a month. It is also notable that over 10 million FASTags have been issued in a span of just three years of their inception.  

These milestones were achieved concurrently with the support of RBI and government, who have put in considerable efforts toward building a less-cash or ‘cash-lite’ society. Further announcements regarding operationalizing acceptance development fund are initiatives in the right direction and the details are eagerly awaited. Building the acquiring infrastructure is the need of the hour as 4.59 million POS terminals for the entire cardholder base is simply inadequate. We have to swiftly move towards facilitating transactions through cards, alternate payment modes like QR, BQR and UPI among others even in Tier III, IV, V markets.

At the same time, we need to keep in mind that the payment industry has seen a plethora of changes in the last three years whether its new payment methods, new technologies, changes in merchant discount rates, changes in interchange rates, incentives to consumers for use of digital payment instruments, etc. There is a need for stability and consistency going forward so that all these changes are digested by the entire ecosystem to ensure that the payment systems continue to be stable and secure and users are made fully conversant with them. This is necessary to take digital payments to the next level in 2020 and beyond.

As a payments industry, on the acquiring end of the business, margins are under pressure. To address this effectively, the industry needs to bring in additional value-added services that can enhance the utilization of POS devices/ acquiring infrastructure and provide additional revenue streams for all the players. Digitizing core operations and implementing Artificial Intelligence (AI) based solutions in coming years will help organizations provide seamless customer experience at a lower cost. This digitization will also better predict and tackle fraud. AI together with Machine Learning tools offer enhanced data collection and analysis that can be utilized to achieve customer stickiness. 

Merchants now recognize the benefits of adopting digital payments and understand how it has become instrumental in boosting their businesses. However, building trust among small merchants still remains one of the major hindrances. It can be achieved by addressing their queries and resolving their issues in an efficient manner and providing adequate financial literacy in this area. 

Given the huge opportunity for digital payments to significantly move the needle and capture many more payment transactions, over 90% of which continue to be in cash, the coming years will continue to see innovation and disruption in India. We will see more Fintechs, more start-ups driving towards frictionless and seamless payments with a customer-centric focus. The Government and RBI are expected to continue to encourage the adoption of digital payments through their policies and mandates. Established players will have to constantly evolve and bring in new technologies as their playing field changes.

Adoption and deployment of new technologies will be the key to these changes and the success of organizations in payments business as will the adoption of new revenue and customer service models to stay relevant and viable.