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Simplify to amplify

PayNext Insights 2017

This publication discusses the Indian context digital payment and the consequent trends, innovations, and implications for regulators, traditional banks, and new entrants. The aim is to amplify the adoption of digital payments, with an end state goal of a “less-cash digital Indian economy”.

India’s financial services industry is undergoing a dramatic shift and a combination of forces at play is leading India’s transition to a ‘less-cash’ economy. Four forces which are transforming India’s digital economy are:

Digital adoption by consumers and small merchants

With close to a billion mobile connections (one-third of which are projected to be mobile internet users in 2017) and 2.6 million point-of-sale (POS) installations, digital adoption by consumers and merchants is an important force in driving the shift to a ‘less-cash society’.

Policy measures by Government of India (GOI) and Reserve Bank of India (RBI)

Subsequent to the demonetization of INR 500 and INR 1,000 notes in November 2016, both GOI and RBI announced a series of policy measures for the promotion of digital payments. A few key actions in this regard were: expansion of digital payments infrastructure at the merchant establishments, expansion of digital payments in rural areas, reduction in the MDRs on debit card transactions, incentivizing digital payments at fuel pumps, insurance portals, rail tickets, toll plazas etc., budgetary measures, relaxation in the PPI norms, etc.

Build-up of a national payments infrastructure by NPCI

With a number of products and services, i.e., BHIM/UPI, BBPS, AEPS, Bharat QR code, USSD *99#, IMPS and potentially an inter-operability within the PPIs, the payments infrastructure is graduating to a multi-functionality, multi-device, multi-purpose setting up a base platform for growth of a digital economy.

New entrants to the financial services industry

The financial services landscape in India is more diverse today with the introduction of payment banks, small finance banks, and FinTechs. The new entrants, particularly payment banks and small finance banks, will be instrumental in extending financial services to farmers, small savings customers, middle and low income households, micro and small enterprises, across sectors and the migrant labour workforce which remits money to hometowns.

Going forward we believe that financial services in India will enable digitalization of cash in business domains that were predominantly cash (e.g., transportation, retail, travel & hospitality, pharma, food restaurants). This will require cross-industry collaboration leading to the emergence of ecosystems and a multi-functional, multi-dimensional FinTech platform.

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