India is set for a digital payment revolution and the overall payments landscape of the country is up for a complete overhaul. The digital payments industry in India are expected to hit $500 billion by 2020, contributing 15 per cent to the country’s GDP, according to the latest ‘Digital Payments 2020’ report by Google and Boston Consulting Group (BCG). The recent move by the Narendra Modi-led government to demonetise high-value currency notes to wipe out black money has only added fuel to the fire by pushing more number of people to use digital modes of payments. The trend that has picked up as an immediate aftermath of the announcement is expected to continue and create a lasting impact.
Within hours of the government’s ban on the existing Rs 500 and Rs 1,000 currency notes, mobile payment and commerce platform — Paytm — saw an overwhelming 435 per cent increase in overall traffic. The company has registered a 200 per cent hike in the number of app downloads and 250 per cent surge in the number of overall transactions and transaction value. The number of ‘saved cards’ also grew 30 per cent, pointing at a strong set of repeat customers. The company has recorded a 1000 per cent growth in money added to the wallet and a 400 per cent growth in transaction value of offline payments.
“At Paytm, we are proud to announce that we have been able to help millions of Indians adopting digital payments during the recent cash crunch. It’s heartwarming to see merchants, small or large accepting mobile payments using Paytm…,” said Kiran Vasireddy, senior vice-president, Paytm.
Same is the case with online payment gateway PayU India. As an immediate consequence of the announcement, PayU India witnessed an increase of 85 per cent in daily transactions. “Besides, new merchants are also opening to the idea of cashless economy, since the inquiries by merchants have increased by 50 per cent. While our average daily transactions amount to 12 lakh, we are anticipating the same to increase by 25 lakh in the upcoming months,” said B. Amrish Rau, CEO, PayU India. “Following the demonetisation, consumers have become much more agile and are now actively adopting cashless economy, since it is immune to demonetisation,” he added.
Flipkart, India’s largest e-commerce company, agrees that the government’s decision has given a big push to the adoption of digital instruments like wallets and Unified Payments Interface. “In the last few days, we witnessed a lot of movement towards electronic transactions and we expect the economy to further support this change. To encourage customers to adopt other payment modes, we have also introduced wallet cashbacks, which are being actively used by multiple sellers and brands,” a Flipkart spokesperson said.
Apart from e-commerce and online payment players, app-based taxi services that accept electronic modes of payments seem to be one of the major beneficiaries as cash-starved bus and auto commuters have started using them. Ola cabs recently announced the launch of Ola Credit — a unique postpaid service which enables commuters to pay later for their rides.
“Ola Credit is a global first from Ola to keep India moving towards a cashless economy. Ola Credit provides hassle-free mobility to citizens who can pay later for their rides, when cash conservation is important for many citizens,” Raghuvesh Sarup, chief marketing officer and category head, Ola, said.
Commenting on the stickiness of the trend, Anil Kumar, CEO, RedSeer Consulting, said: “Customers who start using online cabs in the near term would continue to do so in mid-term as well, due to the strong value proposition that online cab players provide.”
Digital Drivers According to the ‘Digital Payments 2020’ report, the growth of the Indian digital payments space is expected to be driven by four mega trends that are also likely to impact the future of this industry — India going digital, a “favourable” regulatory environment, emergence of next-generation payment service providers, and enhanced customer experience.
The first trend India going digital is reflected in the rising smartphone penetration and Internet access, which translates into the growth of digital banking transactions. India currently ranks second in the world with over 1 billion mobile subscriptions, out of which about 240 million consumers use smartphones and this base is projected to increase to over 520 million by 2020. The study revealed that in the past few years, digital banking transactions have grown 50 per cent year-on-year, followed by ATM transactions growing at 15 per cent. Not surprisingly, branch-based transactions have reduced by almost 7 per cent in FY15 as compared to FY14.
With regard to the regulatory environment, the government and regulators have taken several initiatives to promote digital payments in India. For instance, as per current RBI guidelines, customers need not undergo a KYC (Know Your Customer) process for transactions up to Rs 10,000 per month on prepaid instruments. The guideline has encouraged the download of mobile wallets, which are also exempt from the Two-Factor Authentication (2FA) which is mandatory for transactions using credit/debit cards.
In addition, the Unified Payments Interface, launched by the National Payments Corporation of India (NPCI) this year, proposes to stitch all services from Immediate Payment Service (IMPS), Automated Clearing House (ACH) to RuPay into one common platform. “This would allow for seamless interoperability and the potential unlocking of multiple solutions,” according to the Google-BCG report.
In the past 3-4 years, India has seen the emergence of a string of next-generation payment service providers spanning across sectors — telcos, banks, wallet companies, and e-commerce/tech firms.
In the past, banks have largely offered mobile banking apps with integrated bill payment solutions. However, customer experiences with mobile wallets have proved to be far more seamless and quick, leading to customers preferring wallets for mobile recharge and bill payments. Thus, banks have now started offering their own mobile wallets in addition to the mobile banking apps. Few examples include Pockets by ICICI Bank, Lime by Axis Bank, PayZapp by HDFC Bank, SBI Buddy by SBI, and Ziggit by IDFC Bank.
Banks apart, large telcos such as Airtel and Vodafone have mobile payments solutions — Airtel Money and Vodafone M-Pesa, respectively, targeted at their own customer base. Idea Money from Idea Cellular, mRUPEE by TATA and JioMoney by Reliance are other telco-led payment solutions launched to help consumers conduct a variety of financial transactions conveniently.
Prepaid wallets came into existence around 2009-10 in the form of app-based mobile wallets where one can store a certain amount in their account funded through credit/debit cards or net banking. Paytm, MobiKwik, Freecharge, and Citrus Pay are some well-known mobile wallets in the market. Some of these have been acquired by tech firms (e-commerce, radio cabs, entertainment bookings) to offer in-house wallet solutions. For example, Snapdeal acquired Freecharge, Flipkart acquired FxMart to offer Flipkart money and Amazon acquired Emvantage. While Ola offers Ola Money, Bookmyshow too has its own wallet app to service customers.
Finally, enhanced customer experience will be a key driver for consumers to adopt the digital payment revolution. Indian customers are now used to a superior experience owing to the popularity of e-commerce, and are demanding a similar experience from their financial services providers as well. This includes seamless access to bank accounts and payments, coupled with rewards, loyalties, and offers.
Road Ahead The digital payments landscape in India is still nascent though it has seen significant activity in the past 2-3 years. The opportunity that lies ahead is enormous. “The digital payment offerings of the future need to combine the simplicity and universality of cash with the security and convenience offered by digital payments,” the Google-BCG report stated.
Technology will be the key enabler for mass adoption of digital payments. The right product has to cater to the heterogeneous needs of the customer solved in a customised manner. The payment methods have to be simple, fast, efficient, and secure. With those in place, the complexities of using digital will be gone and the habit of using cash will soon be a thing of the past. Research has already proven that convenience has emerged as the primary reason for customers to embrace digital contrary to the popular belief that discounts and cash backs are the only motivators. Times are changing!
THE TRANSFORMERS Seven trends that are set to transform the payments landscape in India over the next five years
- Technology will make digital payments simpler
- Merchant acceptance network to grow 10X by 2020
- Payments will drive consumption — and not the other way around n Consolidation will drive ubiquity
- Modified UPI (Unified Payments Interface) will be a game changer n Digital identity to accelerate customer acquisition
- Cash to non-cash ratio will invert over the next 10 years
Source: Google-BCG Researchayushman@businessworld.in
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Ayushman is an award-winning business and tech journalist based in Bangalore, with diverse experience in journalism across newspaper, magazine and news wire. He is the recipient of the 15th annual Polestar Award in Jury's category for excellence in journalism in 2013. He is also an NSE-certified capital market professional (NCCMP) and driven by his interest, he has also attended hands-on workshops on cloud computing to stay on top of technology journalism
