Highlighting the growth opportunity in the digital payments industry in India, Google and Boston Consulting Group (BCG) recently launched a report that projects that by 2020, the size of digital payments industry in India will be $500 billion; contributing 15% to India’s GDP. Further, by 2020, non-cash contribution in the consumer payments segment will double to 40%.
Today, digitally-driven transaction enhancements are becoming faster and better, gradually transforming the culture of payments. The last three years have seen explosive growth in digital payments with simultaneous growth in all enablers like smart phones, debit cards and online merchants.
“A considerable number of Indians are experiencing the internet for the first time in their lives on a smartphone which has leveraged the growth of digital payments considerably. Certain enablers such as 3G/4G and superior risk management are key to grow this sector. Efforts to this effect have already been taken by regulators. It is up to the industry to take charge and make the digital payments experience simpler and risk free for the consumer,” says Guru Bhat, GM-Technology at PayPal.
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The ultimate aim of digital payment companies are to replace physical cash. However, non-cash payments are taking certain sectors by storm. Anand Ramachandran, CFO, TechProcess Payment Services is of the view that, “While e-commerce will continue to lead the growth in the near future, in the medium term, it will be ‘compulsive payments’ sectors like education, government, utilities, and financial services who will drive the growth.”
On the flip side, Naveen Surya, MD, ItzCash has a different viewpoint. He says, “Concentrating on one or two verticals is not an option. Ultimately we are fighting physical cash and it is very difficult to say that physical cash is driven by one or two particular segments alone.”
Easy access to the internet, smart spectrum management, public-private partnerships and stringent regulations of the internet market will help digital payment companies to penetrate the rural areas better.
In a country like India, banks and other financial institutions often come across one big challenge, which is to deliver accessible and affordable payment services to people in rural India. Even after the government rolled out its Jan Dhan Yojana to bring every Indian under the banking regime, approximately 24 percent of these accounts have zero balance. This has provided the digital payment companies an opportunity to not only break the rural urban divide but also reach out to the unbanked population. Surya said, “It’s not about rural-urban but, all type of income segments of the customers. So whoever has physical money is targeted.”
Supporting this view, Bhat cited the example of a mother-son duo in Varanasi who conduct math tuitions for students in the US and process their payments through PayPal.
No infrastructure investment and the ease to transact money without physically going to a bank outlet, puts the digital payment companies in a win-win situation in the emerging rural scenario. But, shifting cash-obsessed Indians to digital alternatives still remains an obstacle. In India, nearly one-fourth of population is illiterate and below the poverty line making financial inclusion a huge challenge.
Ramachandran says, “Successful and accelerated implementation of new government initiatives like Digital India, Make in India, Start-up India and digital lockers can help us cater better to the rural economy. Open, safe and easy access to the internet, smart spectrum management, public-private partnerships and stringent regulations of the internet market will help digital payment companies to penetrate the rural areas better.”
Now that we have a clear picture of what the non-cash payment companies are doing in rural India, the question is will it replace the traditional banks?
Surya thinks that banking and payment should be viewed separately as their services vary. In his view, the relevance of banking is for saving rather than transacting. He says, “Cards like VISA and MASTERCARD are also driven by non-bank partners and therefore they will always be mainstream when it comes to making payments. Also, 53 percent of the population is simply earning and spending. So you need a low cost innovative solution where the management of transaction and the cash flow happens. This is not possible with the banking system as they are traditional, expensive and have to be a lot more robust and secure in order to meet a lot more compliances and regulatory requirements versus the payment industry.”