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India’s Digital Payments Future: What to expect in the new decade

Digital payments, UPI volumes, MDR order, UPI payments, RUPay cards, FDI flows, PSU banks, PhonePe, PayTM, RBI, SRO, self-regulatory organisation, SEBI

The payments industry has witnessed a monumental revolution in the last decade. There have been remarkable innovations and initiatives that have changed the way India transacts. For instance, Government's push towards digital payments with initiatives like FASTags, the introduction of interoperability on wallets, cash recyclers, or innovations by FinTech players like RFID based fuelling apps, all-in-one QR code for merchants and UPI QR-based cash withdrawals on ATMs; digital India clearly holds an extremely promising future.

And while the industry continues to be divided on the removal of MDR on UPI & RUPAY, all in all, this decade will reap the fruits of a game-changer decade that went by.

Gravitation Towards an App-based Economy

The culture of apps that gained momentum in the last couple of years is expected to soar higher in this decade. With RBI reviewing 'interoperability' guidelines for use of UPI QR on ATMs, applications are on the radar for every industry. The confluence of mobile phone availability and subsidized data plans has led to the insurmountable growth of this industry. Indians are bingeing on apps for everything ranging from healthcare to grocery and even fuel management recently. For instance, there is an app that lets users pre-pay for fuel from the comfort of their homes and even get it delivered at their doorstep.

According to a recent report by analytics firm AppAnnie, India is the second-largest market worldwide for app downloads. With 19 billion app downloads in 2019, it is clear that the apps in India are to grow substantially.

However, it will be interesting to see the rise of a super-app which integrates all your must-haves into one, therefore, decluttering the limited screen-space of your beloved smartphone.

A surge in prepaid/gifting cards

For a cash-intensive economy, India has done remarkably well when it comes to the acceptance of prepaid cards. For a newly acquired digital customer and unbanked population, prepaid or loyalty cards are like a breath of fresh air. Thanks to the booming e-commerce sector and the tradition of gifting in India, gift-cards have picked up well too.

India saw increased usage of Virtual cards over plastic in the past two years; this trend has aided in doing away with the brick-and-mortar stores, thereby, encouraging more digital platforms.

According to a global study, consumers spent 7% more on gift cards during the 2019 holiday season than in 2018. This more than doubled the estimated 3.4% increase in overall holiday retail sales reported by Mastercard Spending Pulse. The growth was supported by a 4.5% increase in digital gift card sales. Digital gift cards accounted for nearly 20% of holiday gift card sales in 2019.

Factors like convenience, longer shelf-life, and instant gratifications have led many, including the popular meal vouchers, to evolve from physical coupons to meal cards (physical & virtual) in recent times, sometimes even with the facility to top-up.

With growing competition and a better standard of living, prepaid/gift cards are here to stay albeit with newer features.

National Common Mobility Card (NCMC)

NCMC first drew attention in 2016 when the most awaited Automatic Fare Collection System (AFC) was introduced with Kochi Metro. In 2019, the Government of India introduced its first-ever indigenously developed payment platform: One Nation, One Card, to facilitate seamless travel through different metros and other transport systems.

Like Bank issued card/debit cards, it is a single card that can be used for payments across all segments including metro, bus, suburban railways, toll, parking, smart city and retail in addition to using ATM facilities. This will help in higher digital payment penetration and overall cost savings for both Banks and payment players. As for customers, they can do away with the hassle of carrying multiple cards for different purposes while enjoying seamless experience through its quick contactless feature.

Can this also bring digital-wave to the cash-intensive retail industry? Only time will tell.

Smarter Commute:

Fastlane, FASTag, NCMC and QR code – all these are salient digital initiatives aimed at one objective, ease the commute and provide the end-user with a more secure and seamless transaction experience.

An improved standard of living and better connectivity will lead to newer and smarter ways of transportation. Implementation of NCMC, automatic toll collection with FASTag at National Highways, pre-paid fuelling with Fastlane across fuel outlets and the wide acceptance of QR tickets at metro stations, are examples of digital India fostering smart commute.

In a statement, Sukhbir Singh Sandhu, Chairman of NHAI, claimed that at 86.2 crores, the highest ever toll collection was recorded in January 2020; out of which, 50 crores is traced to FASTag. In fact, FASTags are also being tested for facilitating fuel and parking fee payments.

Further, there is a recommendation by CDDP that all new metro and transit payments should be made interoperable through NCMC. Well, our eyes are all set on the 2nd phase of this metro in our own Silicon Valley.

Acceptance of frictionless payments:

To ensure frictionless payments, the industry currently has both – innovations as well as upgrades. For example, the traditional PoS machine has evolved into an android version that provides ease of payment and makes it more secure.

According to a media report in 2019, RBI is thinking about developing a sovereign digital currency in the country and will be releasing it appropriately. Furthermore, RBI mandated tokenization of cards (currently only applicable on credit cards), may provide a much-needed boost to the virtual card (open-loop) segment, thus, bringing in the second wave of digitization. While recent government initiatives like removal of MDR on RUPAY cards and BHIM UPI platform are expected to increase merchant acceptance points and bring more people under the ambit of digital India, we also expect to see increased usage of QR code across sectors which will continue to aid the urban users and empower the less privileged section of the society – thanks to the increased digital literacy in tier 2 and 3 cities.

All in all, the future looks promising and holds great benefits for users and providers both.

by, Ravi B. Goyal, Chairman & MD, AGS Transact Technologies Ltd.