Reading Time: 4 minutes
India’s digital payments industry has been spearheading the democratization of payments and has been a key supporter of the Government’s Digital India and cashless initiatives. Recognizing the critical role played by the digital payments ecosystem, recently the RBI Governor referred to payment systems as the lifeline of the economy, aiding in the achievement of financial inclusion. Further, he lauded India’s state-of-the-art payment infrastructure and innovative products which are driving higher adoption, in the backdrop of the pandemic and a greater digitalisation push by the Government. The need to ensure adequate cybersecurity and data privacy was emphasized.
Digital payments would continue to be a key driver of growth within the fintech cohort, with promising future prospects, given the jump in online transactions and enhanced internet penetration. Here’s a glimpse into the recent digital payment trends seen in India.
4 Digital Payment Trends Observed in India
Digital Payments Trend #1: Boost in Transactions and Market Share
During June 2021 alone, India’s digital payments system processed over 15 crore transactions daily, valued at INR 4.5 lakh crore each day. A McKinsey report highlights that by 2025, Bharat or rural India would contribute 63% by market share. In fact, studies indicate that the digital payments ecosystem in India has reached remote areas, where even banks find it difficult to access. However, there is still a lot of ground left to cover to truly bridge the digital divide. This would require the availability of digital payments in regional and vernacular languages as well.
Digital Payments Trend #2: Reaches India’s rural areas
The Ministry of Electronics and IT (MeitY) announced a program “Digital Finance for Rural India: Creating Awareness and Access through Common Service Centres (CSCs)”. The goal was to establish CSCs as Digital Financial Hubs, create awareness amongst the rural public regarding the Government reforms and make digital options accessible. As a further measure to boost acceptance, the Central Govt invested ₹ 65.625 crores to encourage the use of digital payments modes i.e. IMPS, UPI, Bank PoS machines, and beyond.
RBI too proposed the idea to set up a Rs 345-crore Payments Infrastructure Development Fund (PIDF) to encourage the adoption of digital payments by small-scale merchants in tier 3 to 6 centers and the Northeast states. This led to the establishment of multiple physical and digital Points of Sale (PoS) with a view to enhancing the digital payments options for villages in Bharat.
The Govt of India’s emphasis on enabling Internet access for the rural population has aided in the digital payments movement. For example, Digital India has encouraged a transparent, cash-less India and Bharat Net, a ground-breaking plan to connect and offer 100Mbps internet connectivity to Gram Panchayats across India would revolutionize the digital payments adoption in Bharat.
Digital Payments Trend #3: Prioritizing data security
A friend in need is a friend indeed. With lockdowns in place and strict restrictions on travel and mobility, it would not be an exaggeration to say that the digital payments ecosystem helped the common man tide over the pandemic crisis. From the comfort of one’s home, it was possible to transact and buy groceries, essentials, and other products online through digital payments.
With the high volume of consumer data in the hands of private players, it becomes imperative to ensure data privacy and consumer protection. With this objective in mind, the Central Government drafted the Personal Data Protection Bill, 2019 (“PDPB”), tabled in the Lok Sabha by the Minister of Electronics and Information Technology. The goal is to protect the personal data of consumers including financial data and in the case of data shared with external parties example e-commerce sites.
In Feb 2021, RBI further issued guidelines namely Master Direction on Digital Payment Security Controls to strengthen the governance structure of digital payments and enforcement of robust security controls to create a safe payments platform for end-users.
A Gartner study of future technology trends reveals that by 2023, 65% of the global population would have their personal information regulated under laws and regulations, up from 10% currently. This reinforces the importance of the protection of the financial credentials of customers and the need to have secure digital payments platforms.
Digital Payments Trend #4: Innovative payment options
In view of the jump in digital payments adoption, several innovative options have emerged such as:
1. Buy Now Pay Later: Buy Now Pay Later or BNPL enables buyers to spilt their payments in convenient installments, with a zero-interest credit period. Further, with no impact on the credit score, BNPL allows instant credit options for small manageable amounts without the hassle of tedious paperwork.
Source: Fintech Meetup
According to a study by Fintech Meetup, The average monthly spending in India for BNPL was INR 4000, with credit card outlays at INR 3800.
Simpl, founded in 2015 is a pioneer in the BNPL industry in India and is simplifying monetary transactions for consumers and merchants alike through an OTP-based verification and a mere 2 clicks at the time of checkout.
Advantages of BNPL:
- Free of charge during the interest-free credit period with no annual fee.
- Transaction completed within a few clicks
- Easy to access credit
- Secure platform with no need to remember card credentials
- Pay later for bills and instant buying power even if one doesn’t have sufficient balance in their bank account immediately
- Prompt and seamless payment experience for the customer
- Increase in transaction size
- Easy to integrate BNPL payment option
- Strengthens customer relation
- Greater probability of transaction conversion
Other touchless payment modes include converting the merchant’s smartphone into a PoS device, using sound waves to transact, and a digital wallet that uses device-specific internal security to make payments.
Under its regulatory sandbox, RBI is encouraging fintech players and start-ups to launch newer payment modes that deploy novel technologies like near-field communication (NFC), biometrics, off-line and via personal characteristics like voice recognition etc. The rationale is that by eliminating the need for internet connectivity, payments to merchants can enable real-time transactions even in remote areas, to further strengthen the trust in the digital payments ecosystem.
Future of Digital Payments in India
According to a report by ACI, by 2025, digital payments will touch 71.7% by volume, with cash and cheques comprising 28.3% in India. India is expected to make up 2.2% of the global digital payments market by 2023 and record transactions worth $12.4 Trillion by 2025. Further digital transactions have shot up by almost 383% since 2019. Digital payments in India are set to witness a massive upswing in the coming days.