New payment trends

After demonetisation, the number of debit cardholders and wallet users has increased manifold with debit cards contributing to the lion’s share of transactions while wallet usage recently surpassed credit cards. We will also see more consumers downloading and using the BHIM app this year. Increasing reach of digital payments will require Aadhaar-enabled biometric accepting POS devices throughout India, especially in smaller towns and rural areas

Deepak Chandnani

The payments industry is highly exciting today. So much has happened in the year gone by that all developments in 2017 will be watched closely and analysed. Every year, innovation is brought to the market quickly and has early adopters too. In 2017, a few trends we are likely to witness are:

Digital payment instruments 

Arising from the government’s move in November last to invalidate high currency denominations of Rs 500 and Rs 1,000, the end of 2016 saw numerous people taking to various forms of digital payments. Many first-time users turned to cards and new payment methods like m-wallets and the fledgling Unified Payments Interface (UPI). A large percentage of cash has been reintroduced into the system since November and it is natural that a section of people will revert to cash for daily transactions and even high-value purchases. At the same time, a large section of population has discovered the ease of these new ways to pay and will become sticky customers. Indeed, as a large processor of transactions, we have witnessed a very significant jump in digital transactions vis-à-vis the pre-demonetisation era. With the expected Rs 200,000 cap on cash transactions and increased charges on depositing /withdrawing cash from bank branches, a further increase in the adoption of digital payments is expected. The extension of electronic toll collection to a number of national highways and now to state highways, and the launch of a single Bharat QR code, will see wider adoption of these new forms of digital payments.

Innovation in mobile-based payments 

The ubiquitous mobile phone is on its way to becoming an important and perhaps, over time, the predominant instrument for cashless payments. Payment methods introduced today, like QR code-based payments, UPI, USSD and Host Card Emulation are all dependent on the mobile phone. With over 200 million smartphone subscribers in India (and growing), one can expect payment innovation to largely emerge in this space. New payment banks are also focusing on introducing products and solutions that are mobile-based while wallet companies, PPIs and most recently mobile phone manufacturers are also looking to drive payments through mobile phones. All these efforts will further boost the adoption of mobile payments by consumers and acceptance by merchants.

Economically-efficient modes 

There is a massive push by the government to ensure that India becomes less cash dependent. As part of the changes underway, more merchant outlets need to start offering cashless payment options at the earliest. While there are traditional POS terminals that accept magnetic stripe cards and chip cards, merchants will also seek low-cost physical alternatives like mobile POS, digital POS, Bharat QR code, UPI, etc.

Apart from this, they will also look at accepting payments through existing resources like mobile phones, possibly through P2P payment apps like BHIM. There is a strong move in favour of digital acquiring infrastructure and digital issuance instruments to create efficiency and reduce friction.

Wider reach 

The initiative to bring lakhs of new merchants into the ecosystem will sharpen the focus on merchant acquisition. As urban areas are more saturated compared to rural India, banks and other entities will reach out to the latter for growth. At the same time, under-penetrated categories like grocery stores, fair price shops, state government bodies, etc. will be the focal point to increase the penetration of card and mobile payments.

According to BCG, rural India, with a population of close to 870 million people, is where fintech should focus its efforts. The number of debit cardholders and wallet users has increased manifold with debit cards contributing to the lion’s share of transactions while wallet usage recently surpassed credit cards. We will also see more consumers downloading and using the BHIM (UPI) app this year. Increasing reach of digital payments will require Aadhaar-enabled biometric accepting POS devices throughout India, especially in smaller towns and rural areas. We are likely to see these biometric terminals deployed in the market, though the extent will depend on the device cost and customer adoption.

Consolidation and collaboration 

New players like some payments banks and small finance banks have started operations and are taking the first steps in banking. While the consumer pie in digital payments is rapidly getting larger with rural India contributing its fair share, the market is fast moving with heightened competition.

This could result in a shakeout and consequent consolidation among banks and non-bank payment players. Some moves along these lines have already been announced this year.

As the adoption and acceptance of more and more payment methods increases, necessary measures to prevent and detect fraud and risk should be in place with every new method. India is at a crucial stage where the government, banks, service providers and consumers themselves are working towards a less-cash economy. It is important that consumers place their faith in the payments system and are not deceived. Preempting security threats and ensuring consumer financial safety should be an important part of this growth trajectory.

The writer is CEO of Worldline South Asia and Middle-East. Worldline is a leading payments processor in the country. The views expressed in this article are his own.