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“Alexa, transfer money to my mother” - changing how we pay in India

Financial institutions across the country are sitting in the middle of a perfect storm: A Google and Boston Consulting Group report stated that digital payments in India would reach $500 billion by 2020. The digital payments industry in Asia’s third-largest economy will grow by ten times to touch $500 billion by 2020 and contribute 15% of gross domestic product (GDP).

As technology-driven disruption brings together complex and accelerating forces that are transforming financial institutions—it’s important for CXOs of these institutions to know what tech trends are going to shape their own decisions.

The new normal

UPI 2.0 will be India’s de facto digital payment

Today, 600 million Indians, or nearly 1 in 2 people, have a UPI 2.0 account. To say that UPI 2.0 is the game changer for the financial sector is an understatement. UPI’s increasing integration into lifestyles will render plain vanilla mobile wallets and payment apps, obsolete. However, digital payments like Electronic Debit Order Agreements (eMandates) like Electronic Clearance Service (ECS), which have been added to UPI 2.0, will drive new customer adoptions and change payment behaviors.

While the finance sector’s digital evolution is progressing towards making payments as easy as sending a text message, traditional banks will have to increase stickiness for their own native products and services. The latter will do so by augmenting their payment experiences through high-performing marketing and innovation engines. Watch out for a marketing blitzkrieg by tier 1 banks in the months to come.

Additionally, the fast-paced digital disruption in the payment space (read changing consumer habits coupled with government-led regulatory and policy interventions) is moving towards creating friction-free digital payment services. This advance will lead to the design of more B2B-friendly financial systems that also cater to how large SMEs will accept payments. Additionally, more value additions on top of UPI 2.0 will come into play, which will address the gaps surrounding enterprise integrations. This will enable UPI 2.0 go beyond the consumer convenience and address some of the SME challenges as well.

While there has been a lot of buzz around startups like Whatsapp, Truecaller and the like getting onto the payment bandwagon (incidentally, Google Tez has gained quite a bit of traction), it’s still the early stages in India. However, on the other hand, there is WeChat with its 800 million users who make a transaction, at least once a day on the platform. The expectation is that PhonePe will ensure a lot more apps with friction-less mechanisms.

payment trends in India, 2018

Democratizing access to credit

The Goods and Services Tax (GST) gives banks and FinTech providers the opportunity to explore unique methods of credit scoring. One example is leveraging new models of flow-based lending, where GST returns can be used as a proxy for a company’s (especially SMEs’) creditworthiness.

Furthermore, when it comes to individual consumers, mobile-driven purchasing and related digital payment activities are on the rise. This puts millions of individuals into the formal credit ecosystem and means massive data on usage behavior becoming available to progressive Indian banks and FinTech startups.

The democratization of access to credit represents equal economic opportunities for women. Although more and more women are entering India’s formal financial system, the system has still not adapted to women's financial behavior (running the household), their privacy requirements, and their individual access to credit on their own strengths. This insight into half the population’s credit history and potential will do nothing less than, tremendously expand the extent of the impact that banks can have on the country’s financially active population.

Ubiquitous Indian technology

BharatQR is all set to do both, become ubiquitous thanks to interoperable QR codes and boost seamless digital payments. All the while, traditional banks will continue to struggle when mimicking (or bettering) the user experience expertise that payment companies already enjoy—this gives the later a massive first mover advantage.

Given that the digital disruption is predominantly driven by the online world, the O2O (Online-to-Offline) buzz will emerge much later. For example, one could take note of IDFC Bank, the country’s first bank to launch the biometric-based payment system Aadhaar Pay through its network. In other words, IDFC is transforming their Aadhaar Enabled Payment System or AEPS, also described as the bank-led model, that allows online financial transactions at Points of Sale (PoS) using Aadhaar authentication.  We expect innovations like this will see wider adoption in the coming months with other players also entering the fray.

Out of India’s 460 million internet users, only 50 million are transacting on the internet, leveraging digital payment systems. This means that the financial sector has not yet achieved critical mass when it comes to acquiring customers who use the internet to carry out their bank transactions. Add to this the already existing challenges of digital illiteracy and net/mobile access in many parts of the country. Given this state of the internet and digital banking penetration in the country, it is reasonable to assume that meaningful investments made towards bridging the O2O gap very will be well received. For example, offline purchases that can be made with payments via UPI, Aadhaar or Feature Phone will completely reshape the market.

What to watch out for?

Several payment technologies should be on CXO watchlists including sound-based payments, new models of contact-less payments, and map-based payments. Also, voice-based payments are a very real change coming our way. The more than 120 million active voicebot users in the country could inspire traditional banks to leverage their own voice bots to enable payments via voice. Add to this the emergence of interoperability in the voice assistant space, and one day, we could ask Alexa or any other voicebot to transfer money, through any bank to anyone.

Finally, it’s imperative that CXO’s begin strategizing their win in this digitally-disruptive world of payment technology and that they begin working out the answers to these questions:
  • How do I wrest control back from Wallets onto the Bank channels and Apps?
  • What are the additional products relevant to my customers using payments like credit, insurance?
  • How do I evaluate the maturity of our payment solutions?
  • How do I engineer a new digital payment habit that involves my bank’s channels?

Disclaimer: The statements and opinions expressed in this article are those of the author(s) and do not necessarily reflect the positions of Thoughtworks.

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