Increasingly connected landscape of people, devices, eCommerce and social media platforms, is spawning a new world of digital payments. Ubiquitous connectivity, biometrics, tokenization, cloud computing and IoT are just a few trends that are affecting the way consumers transact and interact with their banks. The digital payments landscape is changing and advancing at a greater pace than ever before; major shifts have been seen in the digital payments space. Additionally, the digital payments space has also seen entries of several non-banking companies, offering some of the most innovative services and solutions. Due to the increase in connectivity, mobile technology and ready information available, customers are more aware of these services. This has in turn led to customers becoming more demanding and expecting more security, easy to use solutions – instantaneous and one-touch payments solutions. In all this, positive changes in the regulatory frameworks have helped the space realize positive progress. These developments have not been seen in the development countries, but also in India; where digital payments are witnessing exponential growth.
Digital Payments market space is led by consumer transactions and includes payments for products and services which are made over the internet, mobile payments on POS (point-of- sale) devices via smartphone applications as well as cross-border P2P (peer-to- peer) transfers between private users. The market segment does not include transactions between businesses (Business-to- Business payments), bank transfers initiated online (that are not in connection with products and services purchased online), and payment transactions at the Point-of- Sale where mobile card readers (terminals) are used. By 2020, the size of the digital payments industry in India will be $500 billion, and will contribute 15 per cent of India’s GDP, states a report released by Google and The Boston Consulting Group (BCG). This exceptional prospect for the digital payments space is expected because of increasing shift to mobile, increasing adoption of mobile wallets, banking apps and contactless payment, integration of POS and government support.
By 2020, 60 percent of the digital payments value in India, is expected to be contributed by offline or physical POS, including unorganized retail, eateries, transport, etc. 50 percent of person-to- merchant transactions will be for less than Rs 100. Further, by 2020, non-cash contribution in the consumer payments segment will double to 40 percent (non-cash transactions include cheques, demand drafts, net banking, credit/debit cards, mobile wallets, and UPI). Consider these numbers: in 2015-16, around 747 million transactions occurred through mobile wallets and prepaid cards combined. And 390 million transactions happened through mobile banking. Digital payments, which include direct bank transfers such as RTGS and NEFT, online payments and use of mobile wallets, have grown from a mere 2 percent in 2005 to 7 percent in 2015 and are expected to grow 10 percent by 2020. Going forward, in the next four years 7 aspects are expected to drive the digital payments space in India: Simpler digital payments solutions made possible by technology, increased merchant acceptance, consumption driven by payments, consolidation driven ubiquity, UPI, digital identity driven customer acquisition (Aadhar based authentication and KYC formalities), reduction in the cash-based transactions.
However, perceived complexities around digital payments and the habit of paying in cash, still act as a hurdle.
Given various experiments and initiatives in the market, digital payments players need to ensure safety and security of transactions, in addition to adding convenience for the customer and affordability for the service provider. With these factors addressed, advancements in the digital payments space, will eventually allow the democratization of the convenience or features being provided to the customers and pave way for an unprecedented growth.
Ajith Sankaran is Sr. Vice President, Market Intelligence, Blueocean Market Intelligence.