While there might be a stronger push to contactless payments like touch-based cards, QR code-based payments etc. amid Covid-19 lockdown, there will be much lower discretionary spends due to the economic impact and job losses.
Similar to 2016 demonetisation, fintech startups are looking at the current Covid-19 pandemic as another landmark development that is likely to jumpstart the digital or contactless payments again after the reported slowdown due to the virus impact. The view from the top suggests that India’s digital payments including online commerce and mobile point-of-sale transactions will grow from $64.7 billion in transaction value in 2019 with 513.84 million users to $134.5 billion with 657.77 million users in 2023, according to the data from statistics portal Statista. So, the current healthcare crisis may now let fintech startups to step on the gas as the user penetration in digital payments segment would also climb from 37.54 per cent in 2019 to 46.15 per cent as more users from Tier-III and IV cities along with rural areas experience digital commerce for the first time.
“Just like demonetisation gave a fillip to digital payments, this (Covid) is likely to digitize the lending chain. Digital Payments will start picking up as soon as the lockdown is removed and people start transacting again. There will be a further push to contactless (QR code) payments instead of cash due to possible concerns about the virus. Most of the technology like Aadhaar, eSign, eNACH, etc. are in place and have been working for a while,” Bala Parthasarathy, CEO & Co-founder, MoneyTap told Financial Express Online. The online credit provider is backed by Sequoia India and Moscow-headquartered RTP Global venture capital firm.
The signs of jump in digital payments are already visible during the lockdown. According to over 42,000 responses for a LocalCircles survey for the period between March 23 and April 13, 42 per cent respondents said they have started making more digital payments since the outbreak. This is driven by the purchase of essential goods and medicines in the market or on e-commerce portals along with mobile recharges done using digital payment modes.
However, importantly, the UPI transactions count had declined from 1.33 billion in February to 1.25 billion in March as the lockdown was imposed followed by curbs on economic activity. The data was shared by NPCI on Twitter earlier this month. Nonetheless, the real impact of lockdown on digital payments is likely to be clearer with April and May data if the situation extends in the coming month. “Most of us expect there will still be some form of partial lockdown beyond that. After that, it will take weeks if not months for the supply chain to reboot,” said Parthasarathy. But, “on a positive note, it is a good time to focus on fundamentals at the price of slow or no-growth.”
While there might be a stronger push for contactless payments like touch-based cards, QR code-based payments etc., there will be much lower discretionary spends due to the economic impact and job losses even as the current crisis has led to a stop in the current working capital cycle of many small business owners. Hence, startups are enabling businesses and customers to tide over the current crisis through relevant product launches and timely support.
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“The right measures which are being taken right now is to modify the current offerings in a way that it enables the customers to adopt the product in such crisis situations. Fintech players are launching new products for the customers that might be useful. They have passed the benefits to customers by providing them with the moratorium, and in some cases, the products itself are designed in a way, that flexible payment is possible,” Manish Khera, Founder and CEO, HAPPY told Financial Express Online.
For instance, credit card-based loyalty platform Cred recently launched Cred RentPay for customers to pay rent and for other household expenses. The company had also introduced Cred Stash to provide instant credit line at a low-interest rate as a pilot with IDFC First Bank. Similarly, payment gateway PayU introduced multiple tools for small businesses to fight Covid-19 such as a free website with a built-in payment gateway. It had also partnered with lending startup Indifi to facilitate loans up to Rs 50 lakh to small businesses.
“Over the past few years, many fintechs have built deep relationships with banks, based on API integration with banks’ payment systems and balance sheets. This architecture is now enabling them to continue to service clients and grow business even in these challenging times. This also highlights the symbiotic nature of the Indian financial ecosystem,” Bhupinder Singh, Founder and CEO, InCred told Financial Express Online. However, when it comes to recovery, looking at China’s trend, it seems cyclical as their economy is reportedly trying to recoup and revive now. “We anticipate that it would be a five-six-month cycle for the economy including the fintech players to bounce back as the underwriting is done based on underlying data of the customer in terms of the transactions, which would take five-six months to normalize,” said Khera.