We expect the digital payments space to witness significant disruption in the days ahead. While the exact form and shape of disruption will only be unveiled over time, the crystal ball indicates seven trends set to transform the payments landscape in India over the next five years:
- Technology will make digital payments simpler: Smartphone penetration, unlimited connectivity, biometrics, tokenization, cloud computing and the Internet of Things are a few trends that will shape the way consumers transact in the future.
- Merchant acceptance network to grow 10X by 2020: Mobile based payment solutions and proprietary payment networks will drive merchant acquisition by offering low-investment solutions that will make economics more attractive for merchants and acquirers, resulting in over 10 million merchant establishments that will accept digital / mobile payments.
- Payments will drive consumption—and not the other way around: Payments will provide access to customer transaction data, enabling payment service providers (PSPs) to offer relevant deals, offers and coupons to consumers, thereby influencing their consumption decisions.
- Consolidation will drive ubiquity: Customers prefer fewer, ubiquitous payment solutions. Niche or limited use solutions will be forced to merge to offer near universal solutions.
- Modified UPI will be a game changer: Unified Payments Inter-face (UPI) provides a great platform for seamless interoperability of PSPs. Modified to overcome current challenges, it can drive large scale adoption of digital payments.
- Digital identity to accelerate customer acquisition: Using Aadhar for online authentication and confirmation of KYC data will boost growth of digital payment systems.
- Cash to non-cash ratio will invert over the next ten years:
Digitisation of cash will accelerate over the next few years. Non-cash payment transactions, which today constitute 22 percent of all consumer payments, will overtake cash transactions by 2023.
Digital payments instruments will drive the growth in non-cash payments. Just like, if we consider an example of online Fee payment solution, Feegenie. With Feegenie, we can pay fee online for school, college, university, coaching institute, Clubs, Gyms, associations, RWA’s using credit cards, debit cards, Netbanking or E-wallet. Paying through Feegenie do not require carrying cash for the fee payment. You can pay fee through digital payment platforms like: Netbanking, Credit cards, Debit Cards and E-wallets.
This online fee payment platform will drive non-cash payments as per the future perspective.
Digitisation of payments presents a large opportunity in the Indian context. It is estimated that the total payments conducted via digital payment instruments will be 10 times of current levels by 2020.
Here is the agenda to accelerate the evolution of a successful and economically viable payments play in India:
- Address true customer need: It is critical for PSPs to look for a way to solve payment problems that customers face every day, instead of just offering a solution looking for a problem.
- “Build for the base” with convenient, intuitive, easy to use and safe products: It is imperative to build solutions that are “as easy as cash” to use, enable fast transactions, and yet provide adequate protection to customers’ money.
- Optimize the network effect by building a ubiquitous network: The big push for digital payments in India will come from mer-chant payments. Hence, to drive ubiquity, it is imperative to build a large merchant acceptance network—a combination of both digitally enabled as well as offline merchants.
- Partner, Partner, Partner: Given the tight economic model of payments businesses, PSPs will need to extensively partner in order to lower customer acquisition costs, offer a broad spectrum of solutions and get access to a large distribution network.
- Reduce entry barriers for customers—charge merchants and not customers: PSPs need to find the right pricing model to drive adoption, wherein transaction charge is either levied on merchants (like discounting rate) or when money leaves the digital ecosystem.
- Mine customer data to build additional revenue streams: PSPs can carry out analytics on large volumes of transaction data to offer the most relevant products / services / discounts to the right consumer at the right time and drive higher consumption.
- Look beyond payments—broaden financial services to con-sumption needs: PSPs have an opportunity to expand their customer relationship by offering a full suite of financial services, and even other consumption based products, in order to optimally monetise the relationship.
- Develop an ecosystem to accommodate customer needs: PSPs can develop vertical or ecosystem based offerings that provide an end-to-end payments solution to customers in these ecosystems.
- Exploit next generation technologies to build low cost and scalable solutions: Technology will be critical not only to deliver solutions that are convenient, simple and secure, but also to ensure that the costs of customer acquisition, on-boarding and transactions are minimal.
- Scale: Attaining scale is critical to make the business model of payments business viable. PSPs that make bold moves and build scale have a good opportunity to build a profitable and valuable business.