Money’s next frontier – Digital payments


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The Indian digital payments landscape supported by multiple favorable tailwinds is poised for high growth in the coming years. According to a research report, the digital payments segment in India is expected to multiply over three-fold to Rs 7,092 trillion by 2025. The recent Budget 2021-22 too made an allocation of INR 1500 cr to boost digital modes of payment. The RBI has launched a composite Digital Payments Index to track the penetration level of digital payments. Further, the fintech revolution has resulted in the emergence and growing acceptance of novel payment modes like Buy-Now-Pay-Later, an innovative product representing the convergence of digital payments with the credit ecosystem.


COVID-19: A blessing in disguise for digital payments

While the pandemic adversely impacted the economy, one of the few shining spots that bucked the trend was the digital payments space. In fact, COVID-19 accelerated a large-scale shift to digital payment modes and forced a change in consumer mindset. A PwC report throws further light on the digital payments journey in India.

Source: PwC 

 

 

Key takeaways from the report

Source: PwC        

i. In the last 4 years, CAGR of the digital payments market by volume and value has been 23% and 21% respectively 

ii. By 2025, the volume and value of digital transactions would burgeon to INR 167Bn and INR 238 trillion respectively

iii. Prior to 2010, digital transactions saw single-digit growth

iv. Between 2010–2016, a 28% growth was attributable to the launch of faster payment modes

v. Demonetisation further boosted growth to 56% in 2016–17

vi. The revenue pool expected to be realized for payment players by 2024-25 is INR 2937Bn

vii. The revenues crossed INR 1982 Bn in 2019-20 itself

 

Several factors have contributed to this exponential growth namely the Government’s Digital India’ push and related reforms, the launch of new payment products, changing consumer perception prioritizing convenience and speed of transaction closure, high levels of smartphone adoption, and internet accessibility.                       

                                     

The Davids and Goliaths of the industry

Currently, fintech players, given their agility and robust technology architecture have outpaced traditional players like banks and NBFCs in this race. However, recognizing the evolving customer preference for integrated solutions, banks are in no mood to relent and are exploring strategies to foray into the digital payments domain. As per media reports, the lion’s share of the digital payments sector by market size is currently dominated by technology giants namely Paytm, PhonePe, Google Pay, and the recent entrant WhatsApp Payments.

Source: PwC   

As per media reports, it is believed that SBI is looking to capitalize upon its vast network of branches and huge customer base and enter digital payments by establishing an entity under RBI’s New Umbrella Entity (NUE) framework in retail payments. The NUE framework stipulates that approved entities can set up a payments business, own and operate a pan-India digital payment channel and enjoy similar autonomy in functioning like NPCI. The last date for applications to set up an umbrella entity is until February 26, 2021

PwC report highlights the extension option being offered by banks and NBFCs with lateral offerings like credit, wealth advisory, insurance, and data analytics along with payments products to expand their customer base.                                        

 

 

Further room for accelerated growth

A Redseer Consulting report pegs mobile payment users at 160 Mn currently (2020) with an expected jump of 5x times to touch 800 Mn by 2025. Further, the payment gateway aggregator market slated to be worth Rs 9.5 trillion currently, is expected to amplify 2.4x, supported by high-value transactions, clocking a CAGR of 19% to touch INR 22.6 trillion by FY2025.

According to Statista, digital payments in India registered a huge jump from 2.38 transactions per capita in FY2014 to 22.42 transactions per capita in FY2019.

An ET report suggests that 66.6 billion transactions worth $270.7 billion are expected to move from cash to digital payment modes by 2023. With a country with a population of over 1.3 Bn, there is ample scope to further seize the digital payments business opportunity and drive higher penetration levels.

 

Garnering attention from the policymakers

The rapid proliferation of the digital payments space has not gone unnoticed by RBI and the Government. As per data on cashlessindia.gov.in, one of the key goals of the Digital India flagship initiative of the Government of India is to encourage a “Faceless, Paperless, Cashless economy. 

The RBI has prepared a composite Digital Payments Index (DPI), which seeks to gauge the spread of digital payments. The index would depend on the following five parameters namely payment enablers, payment infrastructure – demand-side factors, payment infrastructure – supply-side factors, payment performance, and consumer centricity. In turn, each of these metrics would comprise sub-parameters to accurately measure the penetration levels of digital payment modes. 

The base period is 2018, the year the RBI-DPI index was launched, with a score level of 100. As per RBI records, the DPI for March 2019 and March 2020 was calculated to be 153.47 and 207.84 respectively, indicating considerable growth in digital adoption. RBI also plans to bring in a greater degree of security in digital transactions by introducing the proposed Digital Payment Security Controls Directions.

 

Growing investor interest

Global investors have jumped into India’s digital payments bandwagon, seeking to be part of the growth story. This trend is expected to be maintained with enhanced investor interest in the coming years. A PwC report lays out the statistics as follows:

i. In the first half of 2020, India’s FinTech sector attracted USD 1.47 billion in investments, a 60% jump over the corresponding period in the previous year

ii. In 2019, total investments in the Indian payments/FinTech space amounted to USD 3.7 billion (USD 1.9 billion in 2018).

iii. Investments in payment companies jumped 3x times to USD 2.1 billion in 2019 from USD 660 million in 2018.

iv. As of June 2020, the number of fintech players exceeded 2,174

With swelling investment funds, the end beneficiaries would be the merchants who would benefit from a rise in transactions and prompt payment realizations and end-consumers who would be spoilt for choice with multiple digital payment modes and facilities to avail value-added services.

 

Customer preferences continue to hold sway

Customers are demonstrating an increased preference for a one-stop platform that offers payment solutions as well as other financial services. Recognizing the changing customer expectation, several payment companies are utilizing investor funding to expand their product offerings and transform into a full-stack financial service powerhouse including value-added services like bill payments, credit lines, wealth advisory, insurance, and special offers on affiliate merchant and e-commerce sites. Other trends include the rise of payment super apps with multiple use cases. This trend is evident in the higher usage of digital payment modes like Buy-Now-Pay-Later – built around loyalty, privilege access, exclusive programs and offers towards delivering a superior customer payment experience.

 

Simpl’s expansion into the bill payments space

The bill payments market has witnessed growing customer usage along with the opening up of new categories, adding to the transaction volumes. Further, with easy access via mobile and autopay options, it is expected that customers would continue to opt for bill services even beyond the pandemic times.

 

Simpl Bill Box: Your favorite payments provider, Simpl is happy to extend the convenience of Simpl pay later option to your utility bills too via BillBox. Simpl allows users this innovative pay-later’ service to manage their utility bills under the following categories:

Users can access this feature on the Simpl mobile app under the name ‘BillBox’. 

‘BillBox’ powered by Simpl takes an integrated approach that simplifies digital billing and payments.

 

Key benefits:

i. 1 tap payment

ii. Ability to auto-pay bills

iii. Ability to save billers for quick payments in the future (with repeat recharges)

iv. Ability to set payment reminders

 

Know more about BillBox in our upcoming blog series.


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