India is set to explode in digital payments based on several key metrics: population, number of mobile phone users, Internet users, and smartphone users.
The Boston Consulting Group and Google recently collaborated on a study named Digital Payments 2020: The Making of A $500 Billion Ecosystem In India, painting a bright future in digital payments for several reasons: technology; 10-fold growth in merchant acceptance; rise of data-driven consumer benefits; consolidation leading to simplification; a unified payments interface (UPI) stokes widespread adoption of digital payments; national ID system eases KYC; and non-cash transaction volume will continue to accelerate, surpassing cash transactions by 2023.
Eiichiro Yanagawa, senior analyst of banking, global financial services, insurance, securities & investments for Celent, says of India, “The first trigger was the battle of financial inclusion, and they have continued to the march of mobile. The barrier is now the network connectivity, but in the near future, the real game changer is P2P.”
The $500 billion in the report title refers to the total payments using digital instruments by the year 2020; the growth will come from payments at POS, business to business payments, and peer to peer payments. While the report notes that Indian companies have not been able to monetize with scale or profitability, it suggests ways payment service providers can optimize the opportunities, including several steps familiar to PFs, including:
–Importance for PSPs to solve specific daily customer problems rather than a general solution;
–Merchant payments will drive acceptance of digital payments, so building a merchant network is crucial
–Develop vertical offerings that provide end to end payment solutions
Regulations can be a help or a hindrance and the report says India’s government policies thus far have India made a digital payments friendly environment: there is no KYC for wallet use, and no friction-adding two factor authentication on transactions for wallet users, and a nationwide unique identifying card and number is making KFC much easier.
Also, UPI is an open architecture platform launched by the National Payments Corporation of India –which also developed RuPay, a domestic card brand that competes with Mastercard and Visa in India and facilitates electronic payments at all Indian banks and FIs. UPI can connect ACH, RuPay, PSPs, FinTechs, banks and India’s fast payments system for a dizzying array of access and convenience.
Prepaid card recharge is the occasion with the most digital usage currently, with bill payment second; the report predicts in-store use to drive the most growth. Merchants believe adoption of digital payments will boost sales but are wary of the technology; consumer obstacles include perceived complications of using digital payments and their habit of using cash.
The report estimates that by 2020 40 percent of digital transactions in India will be person to merchant, and 50 percent of that number will be of the micro-transaction, high frequency variety.
Digital payments are in their infancy in India, and when population and connectivity numbers are combined with technology and friendly regulations, the growth spurt is right around the corner.