Shifting Sands: Digital Payments and Consumer Spending Patterns

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The Indian customer has come a long way – From the traditional physical kirana stores with largely cash denominated transactions to the intermediate ‘phygital’ omni-channel retail shopping formats paving the way for alternate payment channels, to the current-day digital demands of the new normal, where new-age, touchless digital payments have taken center stage in e-commerce purchases. Over time, payment modes and spending patterns have constantly evolved and witnessed a sea change, driven by technology innovations and a consumer-centric focus.

Mapping the digital journey of the customer

With the shift towards online shopping and the e-commerce boom, consumer spending is moving away from the age-old transactions in purely brick-and-mortar stores. This has resulted in the rapid proliferation of new and innovative payment channels beyond cash and card. To a certain degree, the flourishing of the digital payments segment is reflective of the growing consumer spending patterns via digital modes – both in terms of value and volume.

Statistics reveal this marked trend. A recent report by Accenture highlights the digital adoption trends- globally and in India. The report opines that globally over 420 billion transactions valued at USD 7 trillion, are slated to shift from cash to digital payment modes by 2023 and jump to USD 48 trillion by 2030. In India, 66.6 billion transactions valued at USD 270.7 billion are slated to transition from cash to digital payments modes by 2023 and jump to USD 856.6 billion by 2030. Let’s look at some of the prevailing consumer spending patterns influenced by multiple factors, especially the pandemic and the influx of digital payments.

Consumer spending trends: Moving beyond cash towards digital modes

Historically, India has been a cash-driven economy. The Central Government, keen to change the pro-cash bias introduced a slew of measures like demonetisation, NPCI, Digital India and other policy reforms to encourage cashless transactions. The consumer spending patterns, especially during the lockdown, as revealed by an ET study indicate that the Government’s efforts are paying off. As highlighted below, cash withdrawals saw a steep decline during the lockdown.

Consumer Spending Trends
Consumer Spending Patterns

It is expected that the ‘less cash, more digital currency’ culture amongst Indian customers, especially first-time adopters are expected to last and continue well beyond the COVID times.

Convenient payments driving higher sales across spending categories

Convenience and improved customer experience have resulted in experimentation and introduction of newer digital payments channels, all of which have also contributed to a steep jump in customer spending. A Capgemini study mentions that 75% of Indian consumers have enhanced use of digital payments during the COVID outbreak, with 74% optimistic about its continued usage.

Tech-savvy customers created an online demand ecosystem, encouraging many merchants and sellers to scale up their digital infrastructures and roll-out digital payment formats for purchases. A Razorpay report indicates that adoption of digital payments was predominant in the following segments: Food and Beverage sector (25%), Financial Services (21%) and Tours and Travel (15%), with a sizeable 15% of India’s GDP being channelised through digital payments in 2020. 

It is well-known that India is fundamentally a consumer-demand driven economy. A seamless, smooth, frictionless payments experience has the potential to drive demand-side macroeconomic growth levers and improve overall business performance.  

Behavioural changes necessitated by the pandemic

Another key trend witnessed during the COVID times is the traction towards the purchase of staples or essentials, with a focus on health or wellness goods with the postponement of one-time, big-ticket discretionary buys like consumer durables. An EY analysis below summarises the changing customer behavioural patterns, imbibed during the pandemic.


Behavioural changes necessitated by the pandemic
Behavioural changes necessitated by the pandemic. Source: EY Analysis

Along with a boom in online spending and digital payments, there was a curtailment in single high-value purchases, given the prevailing economic headwinds and income uncertainty. 

1. New consumer engagement models driven by a digital-first approach

With hygiene and safety concerns continuing to predominate the consumer mind, a KPMG survey reveals that along with a preference for e-commerce spending, majority consumers opted for home delivery over store pickup from online purchases. This would require sellers to rethink their last-mile delivery models and ensure smooth supply chains with timely delivery.

2. Exclusive offers for frequent consumers encouraging platform loyalty

The tendency to conserve cash by consumers has boosted the shift towards conversions of transactions into an EMI-like repayment option at the point of sale, resulting in a preference for credit-driven purchases. Subscription-based loyalty offers on payments like ‘ Buy Now, Pay Later’ are new innovative channels being adopted by sellers to retain their customer base. This underscores the gradual consumer preference for an almost ‘invisible’ payment experience with successful payment completed with a few clicks and pre-filled information. 

3. Intense competition driving value for customers

Increasingly, consumers are exploring services offered by financial intermediaries like fintech players, opting to look beyond the services not offered by banks and NBFCs for transaction payments. This is attributable to the quality service delivery and secure infrastructure implemented by payment processors, given the volume growth in transactions and tight competition. The consumer is emerging as the ultimate winner, moving towards a faster, safer and better online shopping experience. 

4. India’s Digital Adoption Maturity fuelling dynamic consumer spending

With India moving towards a digitally mature economy, facilitated by high internet penetration levels and high mobile ownership, both consumer spending patterns and digital payments expansion is on the cusp of change with a preference towards money value of time i.e. speed of transaction completion and convenient purchase experience. 

Further, we can expect a continued push by the Government, RBI and regulatory bodies to enhance the penetration levels of digital payments adoption by consumers across the board – urban, semi-urban and rural. Owing to the growing influence of fintech payment players on consumption patterns and consumer decisions, it is possible that there would be tighter regulations in the coming days, to ensure quality and secure solutions for end consumers. 

5. A non-zero-sum game 

With India’s diversity in demographic population, consumer preferences, spending patterns, digital payments adoption i.e mode, frequency and payments facilitators, it would be interesting to witness the trends that shape the future ecosystem for the Indian consumer along with the dominance of digital payment channels. 

Ultimately, the payment modes that offer an integrated experience with a thrust on technology-enabled productivity for the end consumer would emerge stronger, win consumer trust and attract higher consumer spending transaction volumes.


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