India’s e-payments landscape, trends and opportunities

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Digitisation in recent years has enabled the payment landscape in India to grow exponentially. E-payment became the new normal because of safety concerns and social distancing. Brands were also seen leveraging technology to evolve with the sudden changes brought upon by Covid-19.

This transformation has been largely fuelled by penetration of the internet, entry of new players and innovations in technology. Retailers are focusing on creating a seamless experience for their customers. Government initiatives like Jan Dhan-Aadhaar-Mobile have also helped in boosting digital payments across the country. The Reserve Bank of India (RBI), on the other hand announced the guidelines for payments infrastructure development fund (PDIF) scheme to enhance the infrastructure for e-payments across Tier III to Tier VI regions in January this year.

As per a report by PWC, “The total number of digital transactions in 2019–2020 stood at 3,434 crore and grew at an annual growth rate of 44.1%.3 Over 2.2 billion UPI transactions were recorded in the months of November and December 2020.”

Industry witnessed a number of trends especially with big giants coming forward to enable the e-payments space. SBI recently invested in digital payment startup Cashfree. LIC also partnered with Paytm to process payments for premiums.

Here, we discuss some of the trends that gained traction in recent years.

Deferred Payments

Deferred payments, also known as ‘Buy now, Pay later’, was one of the key trends witnessed in the sector. Especially with finances becoming tight during the lockdown, customers adopted BNPL payment methods. This trend gained worldwide traction, as BNPL platforms such as Affirm, Splitit and Uplift experienced significant growth. Giants such as PayPal, Mastercard and Visa have also started offering this mode for payments.

Technology is a double edged sword, and as convenient as BNPL looks, it has some strings attached to it. While it has helped people stay financially stable during the struggles of the pandemic, one might outstretch their monthly budgets, hurting their credit scores. Hidden taxes and fees should also be considered while opting for such offerings.

Digital Payments

There were many studies conducted during lockdown to figure out how long the Covid-19 virus can survive on banknotes. The safety protocols and fear of Covid led consumers to adopt digital payment methods. Interestingly, consumers from all age spectrums were seen using digital cards and wallets.

Companies such as Paytm, PayPal came up with QR code-based payment channels as well. These codes are used nationwide today even at the small kirana stores, the backbone of the retail ecosystem in India. Covid-19 impacted digital transactions the most as people were seen using digital wallets even for buying daily essentials and groceries.

The only con here is related to cybersecurity. According to a report by McAfee, QR based payments may give rise to Qshing or QR code-abuse.The report predicts that hackers will find opportunities to use social engineering to gain access to customer’s personal data in a single scan.

“QR codes provide scammers with a new avenue for disguising themselves as legitimate businesses and spreading malicious links.”

ACH/ECS Transactions

Popularly known as ‘Electronic Clearing Service’ in India, ECH/ACH is a service used to transfer funds from one bank account to another electronically. As per RBI’s guidelines, ECS currently involves no charges or fees for the beneficiary banks.

ECS is currently operational at 15 centers managed by RBI, 21 centers managed by SBI on behalf of RBI, and 29 other centers managed by PNB and other banks on behalf of RBI.

UPI Payments

Undoubtedly, UPI emerged as a saviour for consumers during demonetisation in 2016 and this revolution was further accentuated by lockdown. According to the recent data collected by National Payments Corporation of India (NPCI), there was a threefold increase in UPI transactions and value during the year 2020-21. Moreover, Unified Payments Interface offers zero cost for now, making it one of the most used payment modes.

Some of the key players of the UPI ecosystem are PhonePe, Google pay and Paytm Payments Bank. This is the go-to-mode of payment for a large number of retailers, small merchants and businesses across the country today. While the peer-to-peer (P2P) side of this segment has already been conquered by these portals, the focus has been on peer-to-merchant (P2M) payments for a while.

These trends and offerings have certainly helped in boosting the country’s economy, offering a seamless, safe and secure payment experience for the consumer’s side as well. There has also been a significant rise in payment-as-a-service (PaaS) providers. Although the e-payments space in the country looks promising, there is a requirement for data protection laws and consumer protection laws in order to make the space more reliable and secure.

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