Is 2017 Digital Payments Liberalisation Moment?
While a lot has been done in the past year to create an environment for rampant growth of digital payments, there are still challenges around Customer awareness, adoption, customer trust and security that needs to be addressed
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The economic liberalisation of 1991 is looked up as the moment that ushered in the era of high economic growth of the '90s and 2000's. The country opened up its economic policies with the goal of making the economy market and service-oriented and expand the role of private and foreign investment, it continues to have lasting impact largely aided by reduction in import tariffs, deregulation of markets, reduction of taxes, and greater foreign investment and as a result we are striking distance from being the top 5 economies of the world.
2017 will be viewed as the year when the country turned the curve to be on the path to become a truly digital economy. While there are several headwinds that needs to be overcome, the overall policy narrative at macro level aided by across the board investments in digital initiatives, around governance, digitisation of economy, access to finance, digital payments et all augurs well for the heightened activity like never before.
Over the past few years, India has built some India specific assets that are proving to be the envy of the world, we are blazing a new trail around identity, digital payments, commerce and telecommunications and the fruits of this are already visible, it is no surprise that in the first year of entry Reliance Jio grew the data consumption by 7x to 150 crore GB a month and India jumped to top spot in data consumption. We the only economy in the world with near 100% enrolment of biometrically verifiable digital identity and layers of products and services are getting built on top of this.
The reason why I'm drawing parallel to liberalisation is the fact that, 2017 heralded the coming of age of digital payments. Many pundits have written about demonitisation and its impact on the facets of the economy, there is no denying the fact that demonitisation, helped nudge the digital payments narrative to the mainstream. What unfolded over the next few quarters and how the stakeholders reacted to it, points to the fact that we are on a multi-year secular shift in digital payments. Banks, Non-Banks (short term benefactors), Government, Regulators and all other ecosystem players had to ramp up significantly in a short period of time to ensure the lack of access to cash is well addressed. Water cooler conversations reveal that we achieved what would otherwise take 3-4 years in 2017, aka India leapfrogged by about 3 years.
What changed? While, media reports suggest that Cash is back to pre-811 days in-terms of cash in circulation, It is pertinent to note that 2017 kicked off on the back drop of demonitisation, there was a need for quick fix solution and this is where the nimble, well-funded wallet companies capitalised and quickly captured payment flows. In a sense an opportunistic play and thereby when cash came back, the usage dropped.
Much like liberalisation, demonitisation ensured, Government and Regulator intervened and ensured there is adequate policy cover or change that aided the larger purpose, there are multiple key wins that will play out in the coming years.
" First, Government is the biggest payer (grants, purchases, subsidies) and the payee (taxes, fees), with the Digital India initiative, the tax collections have been digitised to the remotest corner of the country, will this will take a few years to get fully entrenched, we are off to a fine start in this year.
" Second, the Government made the right interventions to promote products that can aid quick adoption, the roll out of Bhim is a case in point, Bhim's meteoric adoption also laid the foundation for others. Google followed on with its first payment product Tez, Paypal started its India operations. Homegrown Hike, rolled outs its payment wallet with UPI, Flipkart's prized jewel Phonepe, as an early adopter of UPI is reaping the dividends of a freshly minted technology.
" Third, the regulator recognised the need to differentiate small merchants and with a view to reduce the cost of going digital, a multi-prong regulatory climate has been created, on one hand, a small merchant with less than 20 lakhs in annual turnover (this includes the likes of corner store grocer, small eateries, cabs, milk man, newspaper vendors etc) to adopt digital at almost a third of the cost. (that they will pay the bank to accept digital payments) on the other, if the merchants accept payments from digital methods like QR code, the cost goes down further by 25%. In effect, a small merchant with a basic feature phone can accept digital payments almost at the cost of one-chai a day. It is now left to the ecosystem to innovate and service these millions of small merchants in a meaningful way.
" Lastly, we are seeing the coming of age of new products that are addressing core India specific challenges, the rise, though in a small way of alternate lending platforms, that is giving a fillip to unsecured credit in small towns. New payment methods like toll payments have seen massive adoption in a short period of time.
While a lot has been done in the past year to create an environment for rampant growth of digital payments, there are still challenges around Customer awareness, adoption, customer trust and security that needs to be addressed. Hopefully ten years from now, 2017 will be looked up as the watershed year for digital payments.
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