By Kartik Taneja
From a financial perspective, the biggest disruption resulting from the global pandemic is that today, economies are plunging head-first towards a digital future. Businesses and customers had to adopt digital payment systems virtually overnight. And a happy consequence has been a massive increase in financial inclusion.
Data supports this argument – Per a World Bank study, only 51% of adults had a bank account of any kind in 2011. Ten years later, that figure stands at 76%. The percentage of account ownership rose by double digits in 34 countries (compared to 2017), and 40% of adults making digital payments did so for the first time at the start of the pandemic. PwC predicts that cashless payment volume will surge by over 80% from 2020 to 2025 (hitting 1.9 tn transactions), and that this number could triple by 2030.
As far as financial inclusivity is concerned, this is huge! The pandemic precipitated a financial transformation that would normally have taken years, perhaps decades to realise.
Key to this transformation is the development and adoption of nation-scale digital backends for financial systems. This happened just at the right time in countries like India, where the large-scale adoption of UPI (United Payments Interface) coincided with the launch of new 4G services and a flood of cheap, internet-ready smartphones entering the market.
We’re now bearing witness to the fruits of such adoption. Countries now have a fool-proof scheme for financial inclusion. Businesses benefit from frictionless customer experiences, seamless cross-border transactions are now possible, and payments innovation is giving rise to a new generation of startups.
Key market players in the digital payments industry
While many countries have developed notable payment systems of their own, like Pix in Brazil or M-Pesa in Kenya, it’s India’s UPI that has been dominating the payments space these past years.
UPI or Unified Payment Interface is a simple concept. It essentially unbundles fund transfer via banks and increases interoperability by opening up access to third-party apps and services. What you get, then, is an instant, real-time payment infrastructure for facilitating bank transactions. It’s easy to use, cost-effective, and safe, and is fast becoming the de-facto payments platform in the country. In terms of sheer volume, India’s real-time transfers stood at 48.6 bn in 2021, which is nearly three times greater than China’s (~18 bn), and nearly seven times higher than the transactions of the US, Canada, UK, France, and Germany combined.
How UPI succeeds
Several factors contribute to UPI’s success in the country. For a start, the government has been investing in developing India’s tech stack for years now, and those investments are finally paying off. As the IMF noted in its report on UPI — and it can come as a bit of a shock when you realise this— it was less than a decade ago that India’s local markets thrived on cash payments. Today, QR codes for digital wallets can be found at every stall and Indians are just as likely to pay via their smartphones as with cash.
India’s young, tech-savvy population had no small part to play in UPI’s adoption, with the govt, regulators, banks, fintechs, and just about everyone else jumping on the proverbial UPI bandwagon with surprising eagerness.
As open as UPI is, it’s also a user-focused platform, going out of its way to protect privacy while also being immensely accessible and flexible. A UPI ID is easy to set up and create, and all you need is a smartphone. India’s tech stack allows for limited online authentication, for example, allowing for the instant creation of a digital wallet account, and the UPI ID is as easy to remember as an email ID or phone number. It’s a simple, yet powerful design that allows even the least tech-savvy individual to learn and adapt quickly to the new paradigm.
In many cases, payments are as simple as scanning a QR code and then scanning your fingerprint or face to authorise.
From a business perspective, UPI’s interoperability provides a great deal of flexibility when it comes to implementation. The customer experience is separated from account ownership, after all, and the front-end, i.e. the interface, can be tailored to your target audience with relative ease.
UPI’s success and ease of use can also be seen in how quickly the system is being adapted to cross-border payments. Several countries have already adopted UPI payments, these include Bhutan, the UAE, Singapore, and Malaysia.
What UPI has shown us is that data prowess and enhanced payment processing capabilities are inevitable. The speed at which the service was adopted by citizens, the scale of operations even at such an early stage, and the eagerness with which banks and fintechs adopted the system is a testament to the fact that traditional payment systems are on the decline. Industry players seeking economies of scale and non-banks exploring new territories are threatening incumbents’ market share.
The advantages of speed, flexibility, and inclusivity that digital payments afford cannot be ignored. The digital payments space is emerging globally and is rapidly opening a new chapter in the current payments landscape. It’s reshaping the global economy in exciting new ways.
(The author is executive vice president, head of payments & consumer lending | Chairman – Neopay. Views are personal.)