India gears up for robust digital ecosystem in ’21

The coronavirus pandemic, which crippled many sectors, has inadvertently aided India’s credentials as an innovative and digital payments market rapidly gaining in scale. Every day, more than 100 million Indians use a plethora of digital and electronic channels such as debit cards, Unified Payments Interface (UPI), e-wallets, Fastag, or Aadhaar Enabled Payment Systems (AePS), putting their trust on an intricate network of companies and technology architectures seeking to make the process “invisible.’ This is, by no stretch, a simple task in a country attempting to displace the centuries-old practice of handing over tangible currency to the nearby merchant in return for desired goods or services, and counting the change to foolproof the exercise. “The future of digital payments is in making them natural and effortless and thereby invisible,” said Navin Surya, founder of fintech company Itzcash, who is now building a New Umbrella Entity (NUE) So Hum Bharat along with CC Avenue and Yes Bank. “There is an inherent risk in handling currency, which gives it a certain value. With technology enabling cash to go digital, these risk appetites could get personalised, and in India, the innovations could be in this direction,” according to Surya, who is also the chairman emeritus of the Payments Council of India.ON THE DIGITAL HIGHWAY In a country with diverse cultural and risk sensibilities, a completely digital economy may not be an immediate reality, but there is no dearth of entrepreneurs, researchers and engineers attempting to make the process of payments more convenient. The payments industry, which saw adoption like never before in the pandemic-stricken year of 2020, expects 2021to be the year of innovation. From traditional banks to new-age fintech firms, the digital payments in the country are enabled by a network of companies that see payment innovation as an endeavour to not just create convenient solutions, but also to drive mass adoption among consumers through sustainable business models. The ease of digital on-boarding and adoption of transaction technologies will pave the way for businesses to be built on top of payment platforms such as UPI bringing in next 100 million users to digital payments, says Harshil Mathur, co-founder and CEO of Razorpay. “We’ll see a massive influx of registrations among small businesses adopting digital channels,” said Mathur. The transaction volumes processed by Razorpay have grown by 40-45% over the last six months. “In a year of unprecedented changes and challenges, 2020 also posed some interesting opportunities for businesses to embrace digital payments. Many moved their business online for the first time, ushering in a new digital transformation,” he said.A WINDOW OF OPPORTUNITYEven as millions of first-time customers adopted digital channels in 2020, less than 25% of the banked population in the country, or about 200 million users, actively transact on any mode of digital channels, according to industry estimates. This makes India a unique country which, while processing among the most volume of digital payments in the world after China, also leads the chart on being among the most underpenetrated digital economies in the world. “During the pandemic, we saw use of local become more vocal, people started shedding use of traditional banking channels and caught on to using alternative digital channels,” said Rishi Gupta, the CEO of Fino Payments Bank. “I was in the interiors of UP last week; customers are using thumb prints to make payments…You will see distribution of insurance products at petrol pumps. The point is that you no longer need to go to a bank branch to avail banking services,” he says. Fino Bank is among a group of new-age fintech-oriented banking establishments leading the charge in piloting new technologies to improve payments experience for the last-mile fund transfer in rural interiors. 80335938BANK AT MY DOORSTEP Gupta believes that the ultimate objective is true democratisation of financial intermediation where a customer need not visit a physical branch to avail services at all. “The movement to merchants and mobile started to roll much faster in 2020 and this theme will further play out in 2021. I feel in 2020, we saw the democratisation of the financial channels where banking services became available to the lowest strata of the society,” he adds. According to Ketan Doshi, the CEO of Pay Point India — a rural focused fintech player —2021will see legacy public sector banks partnering with last-mile fintech firms to offer value-added financial service on top of payment rails. “There is a massive push from the government to enable micro-lending to the last mile and this is the space where I believe where most innovation will take place,” said Doshi. “A lot of public sector banks are looking to digitise their services and are creating end to end digital platforms that will use alternate data and payments technology to acquire customers and then disburse credit.”THE REGULATORY SUPPORT Meanwhile, regulatory impetus shown by the Reserve Bank of India (RBI) in enforcing customer-friendly regulations around contactless payments, offline payments, regulatory sandbox, video KYC and co-lending could go a long way in bringing the next 100 million users to digital payments. The central bank in December 2020, after months of deliberation with key stakeholders, eased the limit on tap-and-pay transactions without PIN at payment terminals to Rs 5,000 from the earlier Rs 2,000. The central bank last year also initiated a pilot to test offline payments on feature phone in no-internet and low-internet zones of the country. According to Rajeev Agarwal of Innoviti, a deployer of payment terminals, these are the two most significant moves that could shape up innovation in 2021. “It’s about bringing convenience to payments and reducing the turnaround times or speed at which the transactions are processed. A transaction of Rs 5,000 covers nearly all ticket-sizes. This has the potential to bring massive consumer behaviour change,” says Agarwal. “I also have the feeling that 2021 will be the year when the offline payments market will finally crack. By the end of the year, we may see 200-300-million new users enter the digital payments ecosystem,” Agarwal adds. Experts believe that 2021 could be the year when card-based payment innovation enabled by technologies such as tokenisation, near field communication, unified QR codes and Buy Now Pay Later (BNPL) could really kick off emulating the success of such modes in European countries. There are several examples of companies leading innovative payment solutions on top of these technologies.TOGETHER THEY CAN State Bank of India is partnering with Titan to launch the country’s first contactless payment-enabled smart watch. Merchant commerce platform Pine Labs is working with over 30 lenders, including ICICI Bank to offer instant BNPL credit through a payment platform which integrates thousands of its POS terminals, with banks underwriting engines. DotPe, a fintech startup, is working with restaurant chains to digitise billing flows through a network of QR codes. Citycash is creating billing solutions through contactless technology for bus corporations. Meanwhile, global payment giants such as PayPal is working with NPCI to test UPI for receiving international remittances. According to Amrish Rau, CEO of Pine Labs — a leading merchant commerce startup — two trends that could really kick off this year are digitisation of small businesses and mass adoption of the Buy Now Pay Later mode of shopping. “The businesses you and I never thought about — from plumbers to dentists — will adopt digital technologies to accept payments,” Rau said. “The second trend I envisage is the digitisation of commerce and stores.”Effective implementation of payment technology has the potential to make life easier. Experts said that the most effective mass market use cases of contactless payments always begin with digitisation of transit systems such as the metro rail systems of London, Tokyo, Bucharest and Moscow. In India, the New Delhi and Mumbai metros could lead the way for mass adoption. “The biggest opportunity for digital payments in a post-Covid-19 world is transit and contactless will have a big role here,” Sameer Nigam, founder of PhonePe, said at a recent ET panel discussion. “India is missing out on a big opportunity — the consumer adoption of contactless payment in the transit and transportation sector. When the market recovers, it would be amazing if we could figure a way to do queue busting,” says Nigam. According to Sonali Kulkarni, lead, financial services, Accenture in India, the innovation for payments participants can’t be just restricted to front-end interfaces visible to customers. There is a need to build cost-effective back-end platforms for banks to handle massive volumes of digital transactions anticipated over the next five years. “There is a need for banks to restructure their architecture and bring in resiliency and low latency in their operations,” says Kulkarni. “The issue is that core banking systems have got created over several years, mainly on old technology, it’s a monolith that’s got created, a lot of business functions are tightly coupled with core banking and most of the transactions that today touch CBS are only read transactions. The good part is few banks are implementing hollowing out of the core exercise.”
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