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Charmaine Oak

Digital Money Ecosystems

Charmaine Oak - Shift Thought Ltd

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Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Four major trends transform card payments market in India

21 July 2015  |  4695 views  |  7

I had an opportunity to catch up with Nitish Asthana of First Data who provided a fascinating account of how the fast moving payments scene in India is changing the very fabric of daily life.

As 900 million mobile phones become potential new payment instruments for the 1.2 billion population, this has a potential to transform not just consumer payments and merchant payments but e-tailing, merchant-to-merchant payments, in-store payments, transport and aspects of daily life in India.

In a country where 90% of retail payments are still in cash and plastic card payment has as yet not reached the scale of say US and UK, India could expect to see a 25-35% growth over the next few years, transforming financial services in historic ways.

As Prime Minister Modi's vision of Digital India takes shape, government incentives could drive the earlier estimate of $150b card industry over next 4 years higher by 50%, to reach $250b-$275b by 2020.

Nitish sees four major trends that are reshaping how people pay in India:

Trend 1: The move from credit to debit cards

In the past 60% card payment volumes were through credit cards and these were used more for discretionary expense. Now the trend is towards use for non-discretionary expense, as consumers use cards instead of cash. Supermarkets are adopting cards and issuers have provided a lot more debit cards.

As 170 million beneficiaries newly gain access to Aadhaar-linked bank accounts, this is changing the ratio of credit to debit card spend, as 560 million debit cards swing into use. E-tailing is growing in leaps and bounds.

Trend 2: The move to contactless payments

As new POS infrastructure rolls out, a traditional terminal cost of $150-$200 can be brought down to $25-$30 through the use of mobile POS.

Modern Retail is progressing very well growing from 5% of retail to 20% by 2020, and with the cost of contactless terminals not significantly higher, as Chip and PIN rolls out, contactless terminals are set to rapidly grow from the estimated 20,000-25,000 today.

Trend 3: The move to mobile payments

The third trend is mobile especially through mobile internet. Of the 900 million mobile phones in use, 300 million are already smartphones and this is shortly expected to grow to 500 million.

People prefer to shop on their mobile or tablets rather than using laptops or PCs. This is higher even than the US and considering how important the Indian market is, apps are being rolled out and payment systems are evolving fast. This market is expected to reach $35 million.

Trend 4: The move to RuPay

The fourth major trend has been the growth of India's local network, RuPay, similar to China UnionPay. In the past Visa and MasterCard held dominant positions in India, but issuance in the last 18 months has changed things. NPCI RuPay has issued a huge number of cards and will play a very important role going forward, as all the new bank accounts use RuPay.

I found it fascinating to understand about all this and a lot more on E-tailing, merchant-to-merchant payments and B2B services, shared in Nitish Asthana's full interview.

How do you see changes in the way people pay in India? Are there other trends you've spotted? Have you yourself changed the way you pay? Would be great to hear your thoughts! 

IndiaPayments TagsMobile & onlinePayments

Comments: (7)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 21 July, 2015, 16:30

The situation on the ground in my personal experience:

  • Mobile POS sucks. 50-75% failure rate with the few merchants that use it. Many stores who tried it have given it up. The ones that can afford it use sturdy POS terminals with GPRS connectivity e.g. Ingenico, which work very well. The ones that can't afford that have gone back to the PIN-based variant of fixed line POS they had before, which is a pain.
  • In a 15 minute straw poll at my supermarket, 50% payments were by debit or credit card.
  • Increasing number of ecommerce companies are supporting Card on Delivery, so we can avoid the friction of using cards online but still get to enjoy the benefits of credit card viz. rewards & deferred payment.
  • While RuPay stickers are visible at merchant locations, most cards actually used are V / MC.
  • HDFC Bank has introduced PayZapp, which IMO is the most frictionless and compelling mobile wallet: It supports 2FA without making the payor jump through so many hoops and does not require pre-loading of money for bill pay and ecommerce transactions. While it's currently only available for HDFC Bank customers, PayZapp will definitely drive greater cash-to-card movement. 
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A Finextra member
A Finextra member | 21 July, 2015, 17:03

Kethataraman thanks very much for sharing with us your valuable observations on-the-ground.

While I'm sorry to hear about the mobile POS failure rate, it is heartening in one respect - India is not just running with mPOS that are successful elsewhere. It seems close to $14 m has been pumped into startups such as Ezetap (Amex stake), Innoviti, Eashmart, Ikaaz (http://yourstory.com/2014/03/mobile-pos-payment-startups-india/).

I recall how long it took for the national infrastructure to get established initially, but now that real time payments, UID etc are there it's become a key enabler for so much more.

RuPay has taken a long time - let's hope the current issuance boost is utilised to start to get usage figures up.

Good to hear you found PayZapp frictionless!

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Balasubramaniam Gd
Balasubramaniam Gd - DBS - singapore | 22 July, 2015, 01:48

There are a lot of challenges, lots of profit and risks , interesting to see big players like ALIBABA and likes pumping in capital and striking it with some big names be it SME or NFC or Paymets.  The first mover is the one that makes the change in this competetive space with a majority of the population still undebanked and underserved guess a good business case in itself.  I want to be optimisic on India there still more to come before the Tipping Point

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Balasubramaniam Gd
Balasubramaniam Gd - DBS - singapore | 22 July, 2015, 01:51

There are a lot of challenges, lots of profit and risks , interesting to see big players like ALIBABA and likes pumping in capital and striking it with some big names be it SME or NFC or Paymets.  The first mover is the one that makes the change in this competetive space with a majority of the population still undebanked and underserved guess a good business case in itself.  I want to be optimisic on India there still more to come before the Tipping Point

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A Finextra member
A Finextra member | 22 July, 2015, 05:58

Balasubramaniam GD, thanks you make very good points. As the "centre of gravity" moves towards Asia, increasingly China and India will find their strategies starting to interlink and as Alibaba takes an interest in India, it's own competitors in China can not afford to be far behind.

With 547 million individuals expected to be in India's middle class by 2025-6, this is no small market and already has plenty of spending money - question is will they get the will, and government incentives will continue to play an important role here. As you say, let's hope tipping point comes soon. On my last trip I saw youngsters urge their parents to order pizzas and items from Flipkart. Now paying for taxis is here, and all the metros have plans in progress, so I certainly see the green shoots have started to mature FAST.

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Balasubramaniam Gd
Balasubramaniam Gd - DBS - singapore | 22 July, 2015, 06:11

Just a different angle to this India Post is sure to get their Payment Bank Liscence, they currently have 1,55,000 branches physically and out of this over 1,35,000 branches are in the rural, look at the disruption the industry will see assuming we are talking of ATM / Bill Pay / e-commerce / NFC , SME , cards its going to be the next tipping point.  Forigen banks have always shied away for new branches as the regulator wants one for one one metro branch for one rural branches.  This is going to be an interesting space to watch.

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A Finextra member
A Finextra member | 22 July, 2015, 06:40

That is a very good point GDB. The world's largest postal network turned bank is going to be interesting and how they move ahead could be a game changer. It seems they are determined to get the iMO/eMO/MMT right this time, shutting down traditional pan-India money order to push digital. As you say, very interesting space to watch!

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