Digital Payments in India: The Race to Capture Your Wallet Begins

Why are major retail brands and most companies excited about getting a digital payment license in India?

Indians are becoming savvy at digital payment, and most companies are not wasting any time in setting up their wallets.

2016’s demonetisation may have kicked up the so-called Cashless India procession, but if numbers have ever given us an indication of where the future is headed, then the narrative has been set up rather nicely.

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According to a recent report on Digital Payment in India 2020 by Google, the total payment via digital instruments is expected to touch $500 billion by 2020.  

Experts are quietly optimistic of payment companies making the best of India’s growing mobile internet population. And the fact that people won’t be allowed to do cash transaction to a greater extent should work in favour of digital payment.

Money Changing Hands

India has predominantly been a cash-obsessed nation, and when 99 percent of the economy was deprived of it, they had no option but to go digital.

Cash payment constitutes 97 percent of the total payment. Government has set a target of Rs 2,500 crore on digital transactions in FY 2018 (Rs 625 crore in the first quarter of which merely 37 percent was met). Digital payments have a huge potential.

Amol Kulkarni, Deputy Head, C-CIER 

The other way to understand the scope of digital payment is the number of users with mobile internet waiting to be snapped up.

India has the third-largest internet user base in the world with 300 million users. Out of which, nearly 50 percent of them are mobile-only internet users. 

And this 300 million is estimated to become 650 million by 2020, as highlighted in Google’s Digital Payment 2020 report. In addition, the Indian Fintech segment is forecast to touch $2.4 billion in 2020.

Digital payment solutions are becoming more relevant for the Indian economy driven by mobile-centric internet penetration. Customers and merchants are holdings two poles of the ecosystem.

Pavel Naiya, Senior Analyst, Counterpoint 

Both Amol and Pavel have similar sentiments to share, and this reflects in the way the industry is shaping up to make you a cashless consumer.

Why the Rush?

Recent reports have given us an indication that the nascent digital payment space in India is catching everyone’s eye. Literally everyone. Amazon recently got its payment license to operate its Amazon Pay service.

Paytm is already there, and they’ve diversified into a payment bank now. Telecom operators are also in for the money with Airtel and Reliance Jio all focused on this side of the business. So, why is everyone after this segment? What do they see worth investing in?

India currently has around 85 million unique active mobile wallet users. Only 60 million prefer mobile banking nowadays. 

Different players are attempting a ‘land-grab’ in the middle to connect more people to the digital ecosystem. It will likely connect more than half of the Indian population to the digital ecosystem in next five years.

Pavel Naiya, Senior Analyst, Counterpoint 

While Amol believes that retailers are now using their existing seller clout to get the same consumer to spend money on the platform, offering them a personalised and simplified solution.

These are network industries already connecting merchants to consumers in the non-financial leg of the transaction (transfer of goods from merchants to consumers). They also have access to data on consumer willingness to pay, choice, preferred modes of payments etc. It is natural for them to leverage their position to complete the second leg of transaction (payments from consumers to merchants) by designing customised solutions.

Amol Kulkarni, Deputy Head, C-CIER 

Some of the well-known technology firms (e-comm, radio cabs, entertainment booking) have shown keenness to offer in-house wallet solution. Snapdeal had Freecharge (till they sold to Axis in 2017), Flipkart’s got PhonePe and Amazon has Emvantage to set up Amazon Pay.

Several companies have applied for such licenses with a total number of Prepaid Payment Instrument (PPI) licenses growing to 46 till last year. 

More establishments will follow the money trail in the coming months, and even years. The landscape of digital payment in India is still in its early stage, and this should work in their favour.

Easier Said Than Done

Most experts would like to see if prepaid payment brands can convert non-digital payment users, which they predict will be very difficult.

While Paytm might have made the best of the post demonetisation scamper, others like UPI or Bharat Interface of Money have yet to reach multifold users.

Getting digital payment right in a diverse country like India is an uphill task. A huge chunk of customers are using cash and have never used the internet. It will be the most challenging task for digital payment players to penetrate them.

Pavel Naiya, Senior Analyst, Counterpoint 

And Pavel has got a point. Going digital cannot be a success, until the rural parts of the country become active participants. A rural/urban split is visible among the digital payment players with most concentrated on urban consumers, forcing wallet providers to think beyond online towards offline rural ecosystem, he adds.

But that’s not the only concern. The use of digital payment (such as Mwallet) might have increased, with over 747 million transactions done via mWallet (while only 390 million via mobile banking), but the transaction value is paltry in front of mobile banking.

Average mWallet transaction value of Rs 620 pales in comparison to Rs 10,400 that is made on an average via mobile banking. 

What Lies Ahead:

• Make payment apps for mobile with user-friendly interface
• Need to incentivise the use of prepaid instruments
• Look into the increasing number of merchants who accept digital payment
• Innovate to reach out to the non-internet user base (which is huge and untapped)
• Bundle payment options with innovative schemes, such as cashback

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