Mainstreaming of digital payments is changing the Indian consumer’s menu
The future of payments in India, post the launch of varied options (POS, mPOS, NFC based, Aadhaar enabled, other pre-paid instruments, IMPS, NEFT/EFT, UPI/ Bhim, Bharat QR, BBPS, online marketplaces) will include a shift in digital payments beyond cards and wallets
By Kalpesh J. Mehta and Monish B. Shah
Our country is presently going through a transformation in transitioning to digital payments.
The new payment ecosystem is multi-device, and multi-functionality in nature. New scenarios in the financial services industry that are driving the adoption of digital payments in India are:
Payment portfolio reset: The future of payments in India, post the launch of varied options (POS, mPOS, NFC based, Aadhaar enabled, other pre-paid instruments, IMPS, NEFT/EFT, UPI/ Bhim, Bharat QR, BBPS, online marketplaces) will include a shift in digital payments beyond cards and wallets.
This will impact customers and merchants, and the adoption of digital payments. We believe the payment options that offer customers & merchant’s convenience, build trust, and are frictionless, will gain ground going forward.
Stabilizing options is also important in reiterating commitment to users, and in increasing adoption levels.
A multitude of options is likely to change the role of the PoS to a multi-instrument and multi-functionality PoS device, as multiple payment options will be accepted on a single device.
A significant factor that will bring the vision of a digitally empowered economy to fruition, is extending the reach of the key initiatives to merchants.
Creating and strengthening acceptance infrastructure by banks (beyond Top 4 banks) is critical.
Remedies such as affordable options for merchants, non-hardware based solutions to penetrate for financial inclusion, merchant training and support, become critical.
We believe business models for payments will have to go beyond transaction-based revenue and leverage transaction data to drive engagement, loyalty and extend new offerings beyond payments, i.e. data driven revenue models.
We also foresee innovative business models in payments emerging that will include integrated value-added offerings (e.g. opportunities to cross-sell), including loyalty and aggregation programs, to better driving customer engagement.
Sustainability & penetration challenges - By dis-incentivizing cash transactions in the economy, and launching various payment options, a long-term thrust to digital payments can be provided, given efforts are made in parallel to improve user experience, accessibility and security of these options.
The Government and Regulator have a dual role, in both, incentivizing digital payments to achieve scale and dis-incentivizing cash.
Forming the Watal Committee under Ratan P Watal, was an important step taken by the government to promote digital payments in India.
The committee has made some compelling corrective recommendations that include setting up a separate payments regulator and improving acceptance infrastructure in India.
Recommendations of the committee, coupled with measures such as “Bharat QR for payments” have the potential to ensure broader participation of financial, and non-financial players such as traders, small retail merchants, goods value chains, agriculture and allied businesses.
While these innovations are being launched, balancing them, and customer centricity, with cyber-security concerns is critical in the face of multiple cyber-attacks.
Creating interdependencies - For the success of the payments business model, eco-system partnerships are crucial, due to network benefits offered by them, and their role in transforming the price/value equation.
They can improve cross-sell opportunities, leverage brands and data (respecting consumer’s privacy), by collaborating with entities in other industries such as tourism, manufacturing, and others.
The kind of partnerships that are required to extend markets, payment value chains, offer new products or change the basis of competition, can be horizontal (entities at the same stage in the value chain), vertical (along their value chain but at a different stage), and diagonal partnerships (across industries).
A few guiding principles for these partnerships must be followed to ensure maximum leverage of a partner’s capabilities - leaner operating models, clear roles and responsibilities, tighter integration across operations and back-end systems, the flow of data and information, and frictionless consumer experience.
India’s tryst with global payments revolutions - The Payments Industry in India is ripe for disruption.
Exponential technology advancement, increasing competitive pressures, evolving customer expectations, and a changing regulatory landscape, are all paving the way for innovative Payments solutions being developed and adopted in India.
Five technology developments that have potential and are disrupting traditional retail banking and payments in India are: (i) Biometrics for authentication and digital identity management are facilitating a shift toward biometric payments, and are making payments truly “invisible”;
(ii) Blockchain and distributed ledgers are expected to simplify and streamline payments infrastructure by lowering costs, increasing efficiency and transparency;
(iii) Machine learning and cognitive technologies are expediting the evolution of the payments industry;
(iv) API based banking and Payments is allowing Banks to extend instant banking and improved efficiency to consumers via the support of 3rd party partners, ensuring higher success of payments;
(v) IoT and Wearables through their interrelated systems, are providing a wider range of payment methods.
A key concern to scale these technologies beyond a PoC is, integrating them with the bank’s current operating models, risk frameworks and bank’s infrastructure.
Individually, these technologies are also currently somewhat limited/sub-optimal across varying aspects such as scalability, robustness, security, meeting regulatory requirements.
While the necessary amendments are being made and new technologies and touchpoints can be expected to promote digital payment transactions, players need to look at adoption levels and commercial applications of these technologies, and their respective impact on player’s business models.
This is what will help players have concrete impacts in digital payments.(Authors’ views are personal. Kalpesh J. Mehta Partner Deloitte Haskins and Sells, and, Monish B. Shah Partner DTTI LLP)