January 14, 2019

Evolution of Digital Payments in India

Cash is the de-facto mode of payment across the globe. More than 95% of the transactions in India are still cash-based. While demonetization wiped out 86% of the currency from the Indian market almost 2 years ago, the ‘currency in circulation’ has increased more than two-folds since January 2017 to 19.5 Lakh Crore rupees (as per RBI). Other modes of payment, specially digital payments, have grown steadily for the past many years. While Credit and Debit cards are the most popular cashless modes of payment introduced more than 3 decades ago in India, the adoption is still slow and steady. There are challenges in adoption due to lack of infrastructure, connectivity and PoS machines. The penetration is low amongst small ticket merchants as well as tier-2, tier-3 cities since banks lack the will to promote PoS adoption for small businesses.

Demonetization disrupted the cash economy for a while with a rise in digital payments. Digital payments growth has been accelerated by four years due to demonetization. Since then, the cash is back, but mobile payments are being used twice as much. Currently, less than 5% of the transactions are cashless and there has been a strong push by the government for digital payments by promoting mobile-based payment methods like USSD as well as Aadhar based payments like AEPS and mobile ATMs. There is an audacious goal to reach 30 Billion digital payment transactions this financial year. As per Credit Suisse, digital payments are going to reach 1 trillion USD in next 5 years by FY2023 from the existing 200 Billion USD (of which mobile payments constitute a bare 10 Billion USD). This growth is going to be led by mobile payments industry.

There are plenty of cashless payment options that have grown in last 3 years — like UPI, NetBanking, Open banking apps, USSD, AEPS etc. The driving force in the evolution of the payment system has been the need to give users the ease of doing it as it directly affects the purchase pattern of a customer.
It is because of this reason that Mobile wallets like MobiKwik, PayTM, Oxigen, Amazon Pay, Google Pay have become the forerunners of the digital payment industry. While these wallets are penetrating into very small businesses and non-tier-1 cities initially with their cash-backs, they have innovated and provided easy user experience that needs minimum learning by a user. For example, payment via scanning a QRCode or simply entering merchant’s mobile number is easy. Sending money to a friend to clear debts is just a click-or-two away. To add on to this, apart from simplifying payments, the value added services like bill payments, ticket booking provided by these wallets have made them the preferred payment option of the savvy Indian consumer.

The future of digital payments lies in providing further simplified and secure user experience, while increasing its adoption by leading socio-economic changes at the grass root level. Mobile wallets are good, but still need taking out the smartphone followed by some action by the user, which is no better than taking out the credit card for payment. Next simplification lies in secure identification and payments (by face detection, voice, sound) which can further disrupt and exponentially grow the digital payments wave.

We are still a long way from reaching a stagnation point for innovation in digital payments, considering the fact that every tech giant in the world is competing to amaze their customers (or capture new ones) with an improved payment process. As I said, I believe that we are all set to take the big leap in making payment an action driven to an intention driven process.

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