Digital Payments Ecosystem in India – Paving way for Cashless Economy
“I dream of a digital India where mobile and e-banking ensures financial inclusion” – Narendra Modi, Prime Minister of India.
A revolution is under way—one that promises not just to make finance more secure for taxpayers, but also better for another neglected constituency: its customers.
Google and Boston Consulting Group (BCG) studied India’s payment landscape and estimated (July 2016) that the total payments conducted via digital payment instruments will be in the range of $500 billion by 2020 which is about ten times higher than it is now. Interestingly, the main contributors to this boom are consumer to merchant transactions at the point of sale, B2B then follows and lastly peer-to-peer transactions.
India has the second largest population in the world. While a large chunk of this population is not bank savvy, the people are adept with mobile and internet usage. India has the second largest smartphone market in world, surpassing the United States, we currently have over 1 billion mobile subscriptions and this is projected to increase beyond 520 million by 2020.
Convenience and greater confidence in the security of digital transactions dominate the reasons why the payments landscape is so drastically changing, both globally and in India. Online payments through debit and credit cards, followed by the emergence of digital wallets, have become the most preferred transaction channels in the last few years, due to their ease of use, the availability of smartphones and affordable internet, and enhanced security and encryption methods.
In India, the following service providers have enabled the push towards greater cashless transactions:
Online Ticketing Firms – This sector was the first to introduce a significant population to digital payment strategies by pushing Indian consumers to get familiar with transacting online for routine services. This includes transportation such as booking tickets for railways (IRCTC), airlines (Makemytrip, Yatra, Cleartrip), and buses (redBus and Abhibus), movie and event ticketing (Bookmyshow), and more recently utility bills payment portals (Bill Desk, Paytm, Citizen Portal, Suvidha, Oxigen Wallet etc)
Mobile Point of Sale – Mobile Point of sale service providers like ePaisa are playing a huge role in ddigitising the economy by digitising the point of sale. They are enabling merchant to accept all types of payments, manage their inventory and grow their business. Merchants now have the ability to access payments from credit cards, debit cards, mobile wallets, UPI etc. Thus ensuring that even shopping for daily necessities like groceries can now be done through digital transactions.
E-commerce Firms – The advent of online shopping transformed the character and volume of digital payment transactions in Shopping websites like Flipkart,Snapdeal, Amazon, Myntra, Jabong, ShopClues, and others, offered highly discounted merchandise, alongside incentives attached with digital payment such as cash back bargains.
Digital Wallets – With the increasing penetration of smartphones and their affordable access, mobile wallet companies began entering the e-commerce segment. Their selling point was the convenient storage of money in digital wallets that made online transactions easier and Leading mobile wallet companies include Paytm (One97 Communications Ltd), Mobikwik (One Mobikwik Systems Pvt Ltd), Oxigen Services (India) Pvt. Ltd, Citrus Payment Solutions Pvt. Ltd, ePaisa Pvt. Ltd, Freecharge, and PayUMoney (Naspers Group). Today these companies have turned their focus into expanding in the offline world, encouraging and incentivising their customers to transact using their service at select retail outlets.
Unified Payments Interface (UPI) – 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, customers will transact with the help of their VPA. UPI’s functionality allows a multitude of transactions such as merchant payments, remittances, bill payments, peer to peer lending etc. that can be up to a limit of Rs 100,000. Data published by the Reserve Bank of India (RBI) in March 2016, established that on aggregate, Indians made more than 730 million withdrawals from 200,000 Thus, the introduction of UPI is, itself, a major development in the evolution of the digital payments ecosystem in India, enabling faster and simpler electronic payments across a diverse scale.
Consequently, there are massive benefits in moving India towards a cashless economy for everybody — bankers, regulators, government, and consumers. There are other indirect benefits as well, namely the boost for startups in the digital payments space (fintech sector), expanding e-commerce market share, and greater financial inclusion for the segment of the digitally unbanked demographic (who range from workers to dependents like students and housewives).
What must now emerge is the ubiquitous acceptance of digital payment methods by bankers and merchants, the maintenance of the security of networks, and ‘reliable speed of transactions during peak hours’. In this regard, the ‘Digital India’ program and the central bank’s regulatory push towards adopting cashless strategies of making payments will definitively promote their growth and usage.