India’s digital payment system will be worth around $500 billion by 2020. Their prediction sees the digital payments sector contributing to 15% of India’s gross domestic product (GDP) in four years’ time.
Multiple factors and official & behavioral trends are fueling this shift towards a cashless economy.
Enhanced internet connectivity and a high rate of penetration of smartphones in the Indian market has altogether shaped India’s payments landscape in favor of digital payment.
Furthermore, flagship government initiatives such as ‘Digital India’ will act as key catalysts for this change.
India’s Prime Minister Take on This Shift
The Prime Minister of India, ‘Narendra Modi’ already proposed the ‘Digital India’ programme to transform India into a digitally empowered society and a knowledge economy. He said,
“I dream of a Digital India where mobile and e-Banking ensures Financial Inclusion.”
“In this digital age, we have an opportunity to transform lives of people in ways that was hard to imagine just a couple of decades ago.”
“India has seen a dream of Digital India. From latest science to latest technology, everything should be available at the tip of one’s finger.”
On The Road to Digitization
- India represents one of the largest market opportunities for digital payments.
- With a population of 1.25 billion, India accounts for approximately 18% of the global population.
- Approximately 88% people prefer cashless payment over cash payment, with 48% using digital payment for more than 75% of their transaction.
- >50% of India’s internet users will adopt digital payments by 2020, with the top 100 million users driving 70% of the digital payments Gross Merchandise value (GMV).
- Ease of doing payment is one of the key factors of users to move towards digital payment.
Shift in Digital Payment Landscape
The digital payment landscape has seen some dramatic shifts in recent years.
India’s Prime Minister, Narendra Modi, announced on 8th November 2016 that the demonization of existing INR 500 and INR 1,000. This move will be a game-changer for the payments industry in India.
The percentage of cash for transactions has seen a rapid decline in the past few years in India.
In 2010, the percentage of cash in all payments was 89% compared with 78% in 2015.
This rapid decline is a result of an increased adoption of non-cash instruments such as cards and digital payments such as mobile wallets, electronic transfers, etc.
Here are four mega trends that are expected to change the ball game of the digital payment landscape in the Indian scenario:
- India going Digital
- ‘Promising’ regulatory surroundings
- Escalation of NextGen payment service providers
- Enhanced customer experience
1) India Going Digital
India is speedily evolving into a digital giant. Rising smartphones penetration and internet access have set that Indian users stay connected. This is also reflected in the growth of digital banking payments.
2) ‘Promising’ Regulatory Surroundings
The payment gateway space is continuous changing. The government and other regulators have recognized the same and kept pace with constantly changing environment.
Although this is just a beginning, a lot more is awaited to succeed in the country in the payments space.
Here are a few key regulatory steps that are currently assisting the digital payments in India:
- KYC relaxation for small transaction
- Exception from Two-factor authentication (2FA)
- Aadhar making KYC easier
- Unified Payments Interface (UPI)
- Bharat Bill Payment System (BBPS)
3) Escalation of Nextgen Payment Service Providers
India has been a witness to a drastic change in last 3-4 years in digital payments. The competitive digital payment landscape in India now involves Telecom, Banks, Mobile wallets, E-commerce and Technology firms in the near future.
4) Enhanced Customer Experience
Indian consumers are now used to a loftier experience owing to the popularity of e-commerce and are demanding a related experience in financial service providers as well. This includes unified access to bank account and payments, combined with rewards, fidelity, and offers.
The trends look like:
- Superior and seamless customer experience
- Attracting customers with offers and discounts
Push Towards Better Cashless Transactions
In India, the following the areas and payment service providers have enabled the change towards cashless transactions:
Online Ticketing Companies
- This segment was the first to introduce a significant population to digital payment tactics by pushing Indian users to get familiar with transacting online for routine services.
- This includes transportation such as booking tickets for railways (IRCTC), airlines (Makemytrip, Yatra), and buses (redBus), movie and event ticketing (Bookmyshow), and in recent times utility bills payment portals (Bill Desk, Paytm, Citizen Portal, PayU, Oxigen Wallet).
- The arrival of online shopping changed the allure of digital payment transactions in India.
- Shopping websites like Flipkart, Snapdeal, Amazon, Myntra, Jabong and others, offered highly discounted range, and digital payment such as cash back deals.
- With the affordable access to smartphones, mobile wallet companies began entering each sector.
- The main point was the useful storage of money in digital wallets that made online transactions easier and faster.
- Leading mobile wallet companies to include Paytm, Mobikwik, Oxigen wallet, Citrus, Freecharge, and PayUMoney.
- Today these companies have turned their focus into expanding in the offline world, motivating their users to transact using their service at retail outlets, local grocery stores, restaurants, petrol filling stations, and app-based transport aggregators.
- Launched by NPCI this year, UPI is a rather big accomplishment for RBI, especially because it simplifies and unifies the online money transfer process.
- UPI is a payments system that allows money transfer between any two bank accounts by using a smartphone app, without the hassle of typing credit/debit card details, IFSC code, or net banking/wallet passwords. Instead, consumers will need to register their mobile number with the bank.
- UPI also supports pull and push type of payment requests.
- Cryptocurrencies like ‘Bitcoins’ and ‘Litecoins’ have a basic block chain ecosystem which is a circulated ledger that works on a peer-to-peer network and accounts for the transactions.
- ‘Bitcoins’ is probably one of the most popular cryptocurrencies out there, and users prefer it because it’s fast, secure, and borderless.
Aadhar payments (APB and APS)
- ‘Aadhar Payment Bridge (APB)’ helps make payments directly to the Aadhar enabled bank accounts of people who are in need of social systems.
- ‘Aadhar Payment System (APS)’ can provide their Aadhar number and fingerprints at a microATM to benefit financial services.
- While the authentication is done by UIDAI, the financial transactions are handled by NPCI.
Instant Money Transfer (IMT)
- Consumer can transfer money simply by entering the beneficiary’s mobile number and a sender code. The beneficiary will receive a 15 digit IMT ID and a 4 digit SMS code.
- The beneficiary can use the sending bank’s ATM to make a cardless withdrawal of the amount by entering the IMT ID and code.
Future of Digital Payments in India
India is all set to witness a massive surge in the adoption of digital payments in the coming years.
The following trends are set to transform digital payment landscape in the coming years:
- Technology will make digital payments easier
- Merchant acceptance network to progress 10X by 2020
- Payments will drive consumption, not the other way around
- Merging will drive ubiquity
- Modified UPI will be a game changer
- Digital identity to accelerate customer acquisition
- Cash to Non-cash ratio will reverse over 10 years
The payment landscape in India is truly changing as the consumers shift more towards online payments and rely less on cash.
With demonetisation, millions of Indians have registered for digital payments with mobile payments being most preferred mode.
In fact, it has been expected that non-cash payments which constitute 22% of all user payments right now will overtake cash transactions by 2023.
The growth of digital payment service providers will also support transparency, becoming an indirect check on the presence of black money in the market, and thereby increasing the contribution to the country’s GDP.