Earlier this year, the Reserve Bank of India (RBI) formed a five member committee under Nandan Nilekani to make recommendations to accelerate the growth of digital payments in the country. With the number of digital payment users expected to increase to 300 million from 100 million, the committee affirmed that the per capita digital transactions, which stood at 22 in March 2019, are expected to rise to 220 by March 2022. These figures are the perfect example of the progress digital payments have made in the country, which makes India a trend-setter in digital payments, globally.
Initially, digital payments were started as a pilot programme in the banking industry. The past five years, however, have seen the introduction of new technology (Unified Payments Interface) and subsequent expansion of use cases across sectors including bill payments, merchant payments, insurance and asset management, amongst others. This has led to the growth of fintech companies who are focused on addressing the existing and future needs of today's digital customers.
Here are the top trends that will shape digital payments in the coming year.
The early adoption of digital payments was led by Gen Z with others slowly embracing the innovation. This can largely be attributed to quick payments and instant end-results which payment apps enabled and early adopters saw great value in that. Over time, what is evident is that digital payments have moved from being just a transaction medium to a way of life.
As we move forward, the digital payments industry will need to continue creating new user experiences which are need-based and innovative. For instance, some payments apps have introduced features like "payment reminders" where users can set payments for recurring monthly bills. Similarly, the "auto payment" option has made life really easy while paying for daily use cases like cabs, etc. The idea will be to create more connected transaction experiences that add value to a user's life. This will result in the entire financial landscape transforming. In short, a customer-focused approach will continue to be the key to creating use cases to deliver differentiated experiences.
More than 95 percent of Indian retail expenditure is offline, of which 70 percent are cash payments - herein lies the opportunity for digital payments to significantly move the needle. In fact, over the past year, penetration of digital payments is no longer restricted to urban India and is increasingly being adopted by Tier II, Tier III and Tier IV cities across the country. While the offline mass sector continues to be dominated by small retailers, it has increasingly become important for them to embrace digital technologies to compete with the convenience offered by the ever-growing online businesses. Store owners are recognising the benefits of having a digital payment infrastructure and understand how they have become instrumental in boosting their business. What is also helping drive this growth is fintech players are tailoring customised solutions making it easier for merchants to start accepting digital payments.
For instance, small merchants can use the ubiquitous QR Code solution, that just requires a feature phone to get started. This solution is extremely simple to use and does not require extensive training for cashiers and/or proprietors. Fintech players have also introduced innovations such as a merchant app to facilitate end-to-end control for merchants on the payment process, including transaction confirmations and reconciliations helping to make the kiranas and small stores more digitally-savvy. Current trends indicate that digital payments are the way forward and small retailers are adapting their approach to remain relevant.
We live in an era of open banking and Application Programming Interface (API). These advances have made it possible for pioneers in the digital payments industry to deliver more valuable, consumer-focused payments experiences. The power of the mobile handset and the connected ecosystem has enabled the creation of new tools to deliver value beyond the realm of only transactions. Today, one can visualise an increased level of collaboration between banks, merchants/billers and fintech companies. Innovative use cases as well as new profit pools will open up as the ecosystem players collaborate with each other.
The Indian digital payments market is in early stages and is poised for exponential growth driven by continued growth and penetration of smart-phones, increased adoption of digital payments by both consumers and merchants and technological innovation by key ecosystem players. Over the next five to 10 years, increased personalisation, wider penetration and acceptance across Tier II, III and IV markets will help bring in the next 250 million Indians who are on the Internet, but not using digital payments yet.