It’s ‘Back to the Future’ for India’s Digital Payments Industry

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Here’s a truism of life. “It is the past which leads us to the present. It’s how we live the present that goes a long way in shaping the future.” The universally acclaimed ‘Back to the Future’ 4 part series produced by Steven Spielberg starring Michael J Fox is a testimony to this. It’s been now 30 years since its release and it would be sheer academic interest for us to see if the predictions conjured up in the movie in 1985, which were considered audacious back then match up to what exist today in 2015. While flying cars and hoverboards that float in air still seem elusive even today, the prognostication of people communicating via video calls, wearable technology such as glasses with video in them, driving around electric cars, fax machines for pictures and living the Star Trek dream of voice activated commands have actualized themselves in the form of Skype or FaceTime, Google Glass, Reva and our very own smart phone (best to be brand agnostic here!) respectively.

Those in the field of Human Relations would be well acquainted with the oft used term – ‘The Pygmalion Effect’ which is a type of self-fulfilling prophecy. In a nutshell it is best explained in the following words. “If you want something to happen, you may unconsciously make it happen through your actions or inaction.” The reason for syncing in this theory along with the Hollywood movie is to draw an analogy with our industry.

The idea of fresh grocery popping down from the ceiling predicted in the movie has given birth to the booming e-commerce industry. The idea of not having to pay a wad of notes or a jangle of coins for your purchases, but instead waving a card to a reader, as depicted in the movie has given birth to the digital payments industry. These are instances of the Pygmalion effect which have resulted in consumers being gifted with the power of convenience, all owing to the pioneering work of companies which worked to convert ideas to reality.

The success of digital payments depends to a large extent on merchant acceptance and consumer adoption. It is a two way street and it is up to the payments ecosystem to understand their needs and tailor make services to fulfill these needs. Despite adoption increasing at a CAGR of 40% per annum, it is the lack of reciprocity (i.e. either merchant not having the requisite infrastructure for accepting digital payment modes or consumers hesitating to adopt) that hinders the transition and makes cash the preferred mode for making payments in India. Despite being more technologically advanced than many other developing markets, the Indian digital payments industry runs the risk of getting into a quagmire if issues related to adoption are not addressed.

The year 2014 was pivotal in more ways than one for our industry given the announcement and implementation of initiatives by the government such as the Pradhan Mantri Jan Dhan Yojana, the Digital India Program and the 100 Smart Cities Project that offers avenues for players in the field of Digital Payments – be it banks, technology powered payment aggregators, billers, service providers et al to initiate India into a ‘less-cash’ future. Coupled with regulator led initiatives of the Reserve Bank of India, discouraging the withdrawal of cash from ATMs beyond a prescribed number of times every month (effective November 2014) coupled with not permitting cash deposits into bank accounts without KYC documentation (effective October 2014) and setting up a Centralized Bill Payments System, the stage is set for India’s digital payments industry which currently is valued at 1.2 lakh crores [(IAMAI), (PCI) (IMRB)] to rev up its growth. Add to this the growth of the e-commerce industry (expected to reach $56 billion in 2023 from $16 billion in 2013) and the writing is on the wall.

India presents a curious case for anyone analyzing the digital payments industry. It’s a country with a vast section of its 1 billion plus population still being unbanked and unaware of being able to harness technology for their own benefit. Those who use digital payment modes are largely concentrated in metros and tier 1 cities and belong to the upwardly mobile generation. There is also section which is aware, but hesitant to take the proverbial leap of faith. It’s tantamount to being presented with the gift of convenience, but not wanting to open it for the fear of it being a Pandora’s Box. This article aims to train our industry’s line of thought on futuristic innovations that are end user centric (both for consumers as well as businesses) and that would be a fine balance between safety (i.e. adherence to regulator guidelines) and convenience (i.e. easing the transaction process so as to achieve a frictionless payments experience). This would be the best approach to convert existing users of digital payment modes into evangelists; the skeptical fringe into uninhibited users and those who are in ‘digital and financial darkness’ to be shown the light.

Based on developments in the global payments industry over the past few years, let us look at possible mobile based innovations in the payments space that we could be bracing for in the years to come and analyze their efficacy in contributing to the growth of the industry and the transition from cash to electronic modes:

Mobile Payments 2.0

The limitations of M-Wallets which include usage limited to select merchants with no interest earned for the balance in the wallet, any innovation that obviates these limitations is set to gain immense traction from consumers as well as merchants who are keen to offer the convenience of digital modes of payments.

Convenience on Delivery

Over 55% of transactions in India’s e-commerce sector are executed via Cash on Delivery (COD). The emergence of Mobile based solutions such as mPOS and digital Wallets gives consumers the convenience of ordering online, checking the delivered goods on delivery and then making payment via mobile.

Cloud based payment platforms

To get more brick and mortar units to shift from spreadsheet based to digital payments, ‘Pay Per Use’ cloud based platforms would prove to be cost effective.

Biometric Authentication

RBI had given a go-ahead to Aadhaar-based biometrics as an additional factor of authentication for card transactions. The challenge is to have POS infrastructure suited for this in place. On the mobile payments front, the application of fingerprint sensors to validate payments could see wider traction.

NFC Payments

With NFC cards being introduced in 3 cities in India as well as with most smartphones being NFC enabled, challenges with regards to infrastructure (Only 1200 NFC POS terminals so far) and security abound. Cloud based payment technology addresses the 2 challenges.

Legend has it that Pygmalion brought the statue of a lady to life by imagining it to be a living being. I end this article on a note of optimism imagining a cash free India. That would most indeed make payment services companies in India hitch a ride in a flying car and go ‘Back to the Future’.

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“Thinking Aloud” reflects the emerging trends and varied outlook of the rapidly evolving internet and communication sector. An IAMAI publication, this is a part of the market education initiative of the association.


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