The Indian payments industry is witnessing a systemic shift in consumer behaviour at the moment. This is because of two major reasons. The first reason is that Indians were already looking to move away from cash purchases because of factors such as convenience. Secondly, the ongoing COVID crisis has also accelerated the structural shift towards digital payments, as consumers prefer to stay indoors while making purchases. This article looks at the great Indian consumer behaviour shift in payments and analyzes the key factors behind it.
The impact of COVID on spending behaviour
The ongoing pandemic has resulted in major lifestyle changes for almost all of us. Hygiene and safety concerns have become extremely important for the public, thereby providing a major boost to sectors such as e-commerce and online payments. Consumers in urban as well as rural areas now prefer to make their purchases from the comfort of their homes. This shift in consumer behaviour is not limited to traditional segments such as electronics, home appliances or apparel.
In fact, Indian consumers are now choosing to buy stuff like food, medicines, personal care products, as well as medicines at the click of a button. According to a survey by KPMG, Tier II and Tier III consumers are doubling their online purchases in the country. This change in preference has meant that cash has taken the back seat, as consumers move towards digital payment solutions like mobile wallets, credit cards, and Buy Now Pay Later (BNPL). Segments such as BNPL are witnessing significant growth because they allow consumers to pay as per their convenience.
Pain points in cash flow
Another major impact of the COVID crisis is that Indian consumers are facing major challenges in terms of their cash flows. The crisis has resulted in mass layoffs around the country, thereby limiting the earning capacity of individuals. In cases where companies are not laying off their employees, other cost-cutting measures such as salary cuts and bonus freezes are hurting the cash flows at the disposal of Indians.
In addition to the above, Indians are also limiting their visits to banks and ATMs in order to protect themselves from the coronavirus. This has meant that cash flows have become tighter and anxiety while making purchases has become a major factor among consumers. In such a scenario, digital payments have emerged as a credible alternative to the cash flow worries of Indian consumers.
Adoption of digital payments
The crisis has also meant that the adoption rate of digital payments is increasing at a rapid rate. According to a study by Capgemini conducted in May 2020, 80% of older consumers stated that they were likely to adopt digital payments within the next six months. This is a highly significant finding because the elderly population of India has traditionally been reluctant to adopt digital payments.
Furthermore, the adoption rate among young professionals is also likely to increase significantly. Fintech firms such as payment banks, e-wallet providers, P2P lenders, and BNPL companies have been gaining traction in the Indian market. This trend is likely to become even more evident in the near future, as Indian consumers look at alternative ways to pay.
Empowerment through BNPL
The major BNPL players are proving to be particularly successful in recent times. Their rapid growth has been driven by two major factors. The first reason is that the food tech sector has made major inroads in India. Brands such as Zomato and Swiggy have become household names. A significant percentage of consumers who use these brands are now resorting to BNPL apps.
These apps not only help them in paying at a later date but also help them in availing exciting offers. BNPL apps are also empowering their customers by covering issues like salary delays and delayed invoices. Further, they are also ensuring that customers can pay from wherever they want. All they have to do is to download an app and set up an account. It really has become that simple.
Foundation of a newfound consumer-merchant trust
An increasing sense of trust between consumers and merchants is also helping both parties. For example, the major BNPL players in the market are also recording consistently high growth rates and low default rates. For instance, the default rate for Simpl, a BNPL service provider, stands at less than 1%. This figure indicates that both providers and consumers in the fintech space are beginning to trust each other.
Similarly, consumers are also beginning to trust merchants. For instance, Simpl has recorded a 50% upsurge in daily essentials transactions compared to pre-COVID levels. This figure indicates that Indian consumers are ready to trust online merchants and are placing their faith in these apps. The future of BNPL and the broader digital payments sector certainly appears to be bright.