India’s digital payments industry has seen steady growth over the past few years as the country’s citizens have embraced alternatives to using cash to pay for goods and services. The government has worked hard to provide the underlying infrastructure to encourage more digital banks and electronic wallet (eWallet) providers into the economy. And evidence also suggests that contactless payments have attracted more significant numbers of users during a Coronavirus epidemic that has made people warier of using banknotes and plastic cards.
The number of Indians paying for goods and services online too has increased, mostly in parallel with improvements to the country’s telecommunications infrastructure. Ookla speed tests conducted in January 2020 calculated the average speed of mobile connections was 11.5Mbit/s, up 14% on the same month in 2019 while fixed internet connection capacity accelerated 58% to 42.1Mbit/s in the same period. Almost all (90%) of 16-64yr olds in the country own a smartphone, according to GlobalWebIndex while the GSMA Intelligence estimates there were 688m internet users in the same year, up 23% on 2018.
Statista’s market outlooks for e-commerce, travel, mobility and digital media calculate that consumer e-commerce transactions in India grew significantly in 2019 and spanned multiple categories. Those include travel (US$87.7bn, up 14% on 2018), fashion and beauty (US$12.5bn, up 36%), electronics and physical media (US$8.7bn, up 23%), toys, DIY and hobbies (US$5bn, up 19%), furniture and appliances (US$3.7bn, up 22%), and food and personal care (US$2.4bn, up 36%).
Many buyers also appear to use smartphone apps to conduct those transactions with GlobalWebIndex estimating that 55% of Indians aged between 16 and 64 made an online purchase via some form of a mobile device last year. E-commerce platform Amazon and digital payment service PayTM were both in the top ten mobile apps ranked by App Annie according to the number of active users in January 2020.
Almost a third (29%) of Internet users between the ages of 16 and 64 also use banking apps and 68% shopping apps. That preference for banking apps is partly explained by low levels of credit/debit card ownership in India. While 80% of those aged over 15 have an account with some form of the financial institution according to Worldbank Global Financial Inclusion Data for February 2020, only 3% of Indians have a credit card and only 960m debit cards.
Demonetisation and UPI major drivers for growth
Up until the last few years, cash has dominated the payments landscape in India, but the status quo has started to change. The total value of digital payments in the country is expected to reach US$1tn by 2023 according to investment banking firm Credit Suisse, with mobile payments representing US$10bn of the US$200bn total in 2018. A report compiled by financial services firm Razorpay also suggests that India saw 383% growth in the volume/value of digital payments between 2018 and 2019. And figures from the Reserve Bank of India (RBI) suggest the volume of total digital transactions recorded a growth rate of 58.8% during 2018-19, up from 50.4% during 2017-18.
India’s banknote demonetisation of November 2016 has almost certainly encouraged the country’s citizens to rely less on cash payments and more on alternative digital methods such as electronic wallets (eWallets) and mobile payments. So too has the development of the unified payments interface (UPI), an instant real-time mobile-only payment system developed by the National Payments Corporation of India (NCPI) and regulated by the RBI. The UPI allows users to send and receive money between multiple bank accounts using a single mobile app, and various methods including virtual payment addresses (UPI ID), mobile telephone numbers, account and Aadhaar numbers, and QR codes.
As of March 2019, there were 142 banks live on UPI with a monthly transaction volume of 800m worth an estimated US$19bn according to the NCPI. By January 2020 the volume of UPI transactions had grown to an estimated 1.3bn.
Global players and backers muscle in
While the evolution to digital payments in the country was initially kick-started by Indian fintech players, its expansion has been significantly accelerated by the arrival of global players quick to spot the opportunity that a 1.4bn population provides.
Having originally launched its UPI-based app under the brand name Tez in 2017, and Google has since folded the service into Google Pay and amassed an estimated 67m active users by September 2019m, driving transactions worth over US$110bn a year. The company also launched a free app – GPay for Business – which removes time-consuming onboarding and verification processes and is aimed specifically at small and medium-sized businesses (SMB) and merchants which have hitherto been slow to adopt digital payments.
Formerly known as FxMart, Bangalore-headquartered PhonePe is backed by Walmart-owned Flipkart. Provided in partnership with Yes Bank it’s UPI app went live in August 2016 and is available in over 11 Indian languages, helping it to attract a reported 170m active users, 5bn transactions and 7.8m merchants on its platform as of last December. Like its rivals, the app allows users to send and receive money, top-up mobile phone credit, pay utility bills and shop both online and offline. Embedded partner micro apps also allow subscribers to pay for select taxis, bus tickets, flights, meals and hotels. PhonePe has also helped grow its user base by forging partnerships which allow other UPI wallets – including Jio Money, Airtel Money and FreeCharge – to be linked to its phone app.
After launching its Paytm eWallet in 2014, Paytm – owned by One97 Communications, whose financial backers include both Softbank and Alibaba Group – is now estimated to be India’s most valuable start-up with plans to IPO in 2022. Paytm says it had amassed 100m users and processed over a billion transactions as of October 2019 just three years after its launch, with the company recently forging a payments partnership with ride-hailing firm Uber.
Having earlier partnered gift-card firm QwikCilver to offer a pre-paid eWallet in 2016, Amazon subsequently obtained a license to provide an ewallet for its own in 2017. The e-commerce giant then launched its person to person (P2P) payment platform – Amazon Pay – for Android in April 2019, allowing customers to make instant UPI bank to bank transactions, settle bills and pay merchants and deliver firms for goods and services through a localised version of the Amazon app.
The company also announced the launch of credit service for a limited set of eligible customers in April 2020. Dubbed Amazon Pay Later it allows Indian citizens to buy physical and digital goods and services from its e-commerce store via a mobile app and complete bill payments with an option to repay the charges next month for no additional fee, or in monthly instalments over 12 months at low interest rates through the bank of their choice. Collecting vast quantities of payments data allows Amazon to better understand shopping patterns, which in turn provides insight into lending and product inventory.
Local fintech players have established presence
Despite the foreign influx, there remains a healthy complement of smaller Indian mobile payment providers which are successfully holding their own for the moment. The RBI licensed MobiKwik’s digital wallet in 2013, used for transferring money, online shopping with major retailers like Amul, Big Bazaar, Croma and Pantaloons, accepting payments, topping up mobile credit and paying utility bills. By the time it its mobile app was made available in eight different regional languages in 2017, the Pune-based company reported having 1.5m merchants and 55m customers
MobiKwik also launched a light version of its app, MobiKwik Lite, specifically designed for use in areas where 4G coverage is limited but 2G/3G connections are readily available. Over 40m people conducted transactions on the platform in 2019, accounting forUS$3bn in total payment volume.
Mumbai-based Fino PayTech has its BPay mobile banking and wallet app, while India’s telcos have also entered the mobile payment space. Mobile network operator Airtel launched its own platform, the Airtel Payments Bank which incorporates its Airtel Money eWallet for example.
Elsewhere Reliance Industries (RIL) operates India’s largest mobile network and is estimated to have around 370m subscribers. It started operating its Jio Payments Bank in April 2018 in partnership with the State Bank of India. RIL is part-owned by Facebook; however, after the latter brought a 10%, US$5.7bn stake in the company. It will, therefore, be interesting to see how its JioMoney eWallet is positioned if and when Facebook’s WhatsApp Pay makes its debut in the Indian market.
WhatsApp has been trying to enter the payments space in India for some time, with integral Pay features trialled with a select number of users in 2018. The company faced complications around data localisation issues that clash with the NPCI rules, however, and only received regulatory approvement for a nationwide WhatsApp Pay rollout in early 2020. Progress has been further hampered with the Competition Commission of India currently reviewing a compliant that bundling payment features into a messaging service that already has around 400m users in the country breaches antitrust and competition laws.
Barriers to expansion remain
Despite strong momentum, barriers to further market growth and profitability remain. In its 2019 State of the Industry Report on Mobile Money published in March 2020, the GSMA suggests that the growth of mobile payments in Asia would have seen bigger gains if it not for weaknesses in the Indian market where several players closed operations due to an increasingly stringent regulatory and operating environment. Aditya Birla Payments Bank (ABIPBL, 51% owned by Vodafone Idea) exited the market in March 2019 for example, just 17 months after its launch saying that unanticipated developments had rendered its business model “unviable”.
Despite obtaining a license to set up a payments bank from the Reserve Bank of India (RBI) in 2015, Tech Mahindra too dropped plans for its own launch a year later saying that competition would have eroded its margins too much. Two other companies – Cholamandalam Investment and Finance Company and a consortium of Dilip Shanghvi, IDFC Bank Ltd and Telenor Financial Services – also abandoned after deciding they lacked the physical presence in terms of offices or branches to make the venture work.
Difficulty making money from low margin transactions has also been an issue for some. Reports suggesting that Paytm’s popularity and the active user base is dwindling in the face of competition have been denied by the company’s management, but executives have indicated that the company is struggling to generate revenue from mobile payments.
It took ten years of operations before MobiKwik finally became profitable just last year , and then only by cutting down on cashback payouts and layering additional financial services (credit and insurance for example) on top of its wallet app. That same strategy has since been adopted by other mobile payment app providers, including Paytm and Amazon with Pay Later.
The adoption of mobile payments in India may also be hampered by security concerns, with numerous cases of digital payment fraud being unearthed in the country. A survey conducted by YouGov and ePayment solution provider ACI Worldwide found that nearly a third of Indians have either been the victims of card or digital payments fraud themselves, or know someone that has been. Even so, the study found that 32% had increased their usage of digital payments (credit and debit card, mobile wallet and other UPI-based payment methods) since the onset of Coronavirus lockdown restrictions following impetus from the National Payments Corporation of India (NCPI).
Secure mobile wallet payment platform
Establishing trust with consumers is instrumental to the ongoing success of digital and mobile payment providers whose competitive edge often relies on being able to process transactions quickly and securely while simultaneously protecting customers from fraud. But providers also have to expend considerable time, effort and other resources building partnerships with individual merchants and negotiating local financial regulation and data privacy laws in each of the geographies they intend to sell their goods and services.
That can impede their ability to design and bring new digital payment products and services to market quickly – one reason why some providers have opted to outsource responsibility to a third party mobile commerce platform provider like DOCOMO Digital.
As one of the world’s largest integrators of digital and mobile wallets in emerging markets like India, DOCOMO Digital delivers consumers’ preferred method of mobile payment and links international merchants with the local payment providers, telcos and mobile network operators (MNOs) that can help them expand their presence and customer base.
That includes offering consumers the ability to conduct mobile transactions via direct carrier billing (DCB), which charges payments through their mobile phone accounts. DCB represents a fast, secure method of purchasing digital goods and services in countries like India where large sections of the population do not own credit/debit cards, as well as young people who are more likely to have smartphone subscriptions rather than bank accounts.
Research also suggests that DCB is a popular way of conducting mobile payments where other transaction methods are either unfeasible or unavailable. In its Global Carrier-Billing Forecast Report: 2019-24, analyst firm Ovum concludes that almost 20% of online users in India already use DCB as their secondary payment method for digital purchases, second only to Indonesia, Philippines and Vietnam.