Is it going to be embedded finance or the rise of Banking-as-a-Service (or BaaS) platforms? As we come to the close of 2021, the year itself has been a “watershed moment” in the sphere of global payments. Driven by the 2020 global pandemic, technology is now emerging as the “game-changer” that could transform the way payments are conducted for the ever-lasting good for both consumers and financial institutions.
How will the Indian payments ecosystem shape up over the next 4-5 years? How do I think this industry will transform over the next decade? Here are the 3 trends or predictions that I find are likely to sustain (and even thrive) in India’s payment ecosystem:
Prediction 1 – The emergence of technology and non-banking players
As technology tools continue to influence digital payments in India, it is no surprise that we are seeing the emergence of more Fintech companies in the Indian market. The largely under-tapped payment space is also attracting technology giants like Google, Facebook, and Amazon who want to build online payment platforms in India.
Previously used simply as a messaging app, Facebook has now launched the WhatsApp Pay facility to enable its wide base of WhatsApp users in India to make payment transactions. By using the approved Unified Payment Interface (UPI) technology, WhatsApp Pay is enabling easier payments without the need to provide bank account details of the recipients.
Among the other tech players, Google is working towards developing its “mobile-first” banking account, Plex (integrated into Google Pay), while Amazon Pay is playing its part in creating faster checkouts for online Amazon shoppers.
My prediction is that more technology players will continue to tap into their customer base in India and offer them more convenient payment solutions. Consumer data is going to be a “gold mine” for tech players as they approach their users with the right “personalized” payment product (or service).
Besides tech players, the Indian payment industry is also likely to see more non-banking companies (check out the Mukesh Ambani-led Reliance Industries) entering into the fray. Apart from that, digital wallet companies like Paytm and PhonePe are now looking to scale up their customer offerings with services like wealth management and digital gold.
Over the next few years, we are going to witness more non-traditional players entering the Indian market and leverage innovative payment solutions to cater to the country’s largely “unbanked” or under-banking population.
Prediction 2 – The rise of offline payments
How about making digital payments without the Internet? Yes, that is emerging as a viable possibility in India.
So far, offline payments were mostly restricted to facilitating cash withdrawals during the pandemic, or for the government to disburse money into weaker sections of people who were out of work. Going ahead, I think offline payments will emerge as a great boon for the “unserved or under-served” sections of the society, or in remote geographical areas with limited Internet connectivity.
The signs are encouraging. The Reserve Bank of India (RBI) has announced that it will conduct pilot tests of digital payment technology to operate in areas where Internet coverage is poor or not existent. Global payment company, Visa (along with Axis and Yes bank) is working on an offline digital payment ecosystem in India.
On its part, offline payments can be possible using digital cards, digital wallets, Point-of-Sale or PoS terminals, and mobile phones. Even phone calls and SMS can enable offline payments.
To enable financial inclusion, we are likely to see more Fintech start-ups exploring innovative ways to implement offline payments. PwC India talks about using “alternative modes like SMS, IVR, and GSM technologies” to initiate a transaction without an Internet connection. Offline transactions can be recorded on payment devices and sent later to the bank once the Internet is available (or restored).
Be it through encrypted messaging or missed calls, I see a wide variety of innovative solutions in India that can boost offline payments. I believe along with technology; we need to stress more on improving customer awareness and education.
Prediction 3 – Innovations in digital payments
Over the next 5-6 years, we will continue to see innovations in the digital payment space, with Indian Fintech companies and technology providers being at the forefront.
A Credit Suisse report reveals that digital payments in India have grown 10x since the last five years and now have a 30% market share. Dilip Asbe of NPCI believes “new technologies like AI and Blockchain will have a huge impact on payments in the next three to five years.”
I strongly believe digital payments will gain prominence and acceptance in the following areas:
With India being among the largest recipients of foreign remittance (15% of the global share), I believe that more technology solutions will be centered around this avenue. With its “sandbox” innovation, the RBI is proceeding to make cross-border remittances more accessible and affordable for its citizens. Under RBI supervision, more Fintech and payment technology companies in India can be collaborating to develop applications that can be used by the masses.
To boost the retail payment landscape in India, the RBI has proposed the New Umbrella Entities (NUE) similar on the lines of UPI. The idea behind this is to provide an ‘alternative mechanism’ to the NPCI that is currently the only authorized entity to facilitate interbank payment transfers in the country. This move will boost private participation and strengthen the retail payment industry through innovative payments infrastructure, products, and services.
As announced by the RBI in January 2021, PIDF will boost investments into digital payments infrastructure particularly in north-eastern states and in Tier 3 (or lesser) cities. Under the scheme, nearly 2.5 lakh physical payment devices have been operationalized by RBI in smaller towns, at an initial investment of nearly 350 crores. These government initiatives along with growing awareness augurs well for the development of digital payments across the country.
Overall, I am optimistic about the future of the payments industry in India, and that it can play a dominant role as a technology innovator for the domestic and international payments industry.