The Uber Revolution - Are You Ready To Brace The Financial Storm?
Nearly 73 per cent of all purchases by consumers today in India are done in cash. The migration from cash and card payments to digital and mobile payments is the future
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The demise of today's payment methods may be much sooner that you can imagine. India is the largest producer and consumer of currency notes after China. Less than 5 per cent of all payments are done electronically today. Nearly 73 per cent of all purchases by consumers today in India are paid for in cash. The migration from cash and card payments to digital and mobile payments is the tomorrow.
Imagine paying your bills and checking credit card balances through your smart wristband. Imagine your iwatch telling your smartphone to pay a credit card or a utility bill because your google calendar knows your payment due date - all without any effort from your end. Imagine a day when your nearby kirana shop, the nearby telecom outlet, the nearby chemist outlet or any outlet that you regularly visit will become an ATM where you can deposit and withdraw cash instantly - yes, no cheques, no OTPs, no ATM cards, no debit cards, just a few taps on a screen. Imagine a platform also allows you to transfer funds person-to-person, person-to-businesses, and businesses-to-person with the ability to pay someone as well as 'collect' cash from someone using only Aadhaar number as your identifier. Imagine person-to-person payments being made through Facebook or through your mobile phone or simply via email, SMS or a tweet.
Can you imagine this financial storm that is brewing all around you? Let me take you to a peep into the future.
1. New Licenses Given For 11 Payment Banks
India's payment market in FY 2015 is Rs 15.5 lakh crore (Rs 15.5 trillion) and is growing CAGR 12 per cent. Branch banking is declining 7 per cent, transactions per ATM are slowing down and internet penetration is gaining. After the 1990 round of bank licenses, last year 21 new licenses have been given - 11 payment banks and 10 small banks. Even before they have taken off, RBI Governor Raghuram Rajan is talking about bringing in more competition in his journey to reform banking system and is talking about "on tap" banking licenses soon. Let us see what they can do to disrupt. But before that just a line on how payment banks are different. Payments banks cannot give loans, can take deposits of maximum Rs 1 lakh and 75 per cent of such deposits have to be invested in government securities, can issue ATM cards and debit cards but not credit cards and can sell simple financial products like mutual funds, money market funds, insurance and pension products.
Telecom Players: The most successful model is in Kenya where nearly two thirds of Kenyans use M-Pesa and 43 per cent of Kenya's GDP moves through it with over $1 billion transactions every month. This service was launched in 2007 by Vodafone for Safaricom, the largest mobile network operator there. In India, you have experienced M-Pesa, Airtel Money and Idea Money in some form in last 3 years. With over 1 billion mobile subscribers today and with just 35 per cent of Indian adults having access to financial institutions, telecom players to my mind will be the biggest drivers to reach the unbanked and underbanked regions of our country providing basic savings, deposit, payment and remittance services and lead the disruption through penetration. Approx. 1.5 million telecom outlets can become payment bank branches. Let us see how soon.
Government Players: Of the 2 players awarded licenses, the Department of Posts which has over 1.5 lakh post offices with 90 per cent in rural areas and over 2.6 lakh postmen who touch base with consumers, can establish themselves as a key player in the payments space given the huge trust it enjoys provided they are able to fast forward their digitization spree.
Replicating Alibaba's Alipay: Alibaba's Alipay has the highest active users of mobile wallet in the world with about 290 million active users (by contrast PayPal has about 165 million active users). PayTM where Alibaba has a 40 per cent stake can quickly replicate their learning and best practices in the Indian market to unleash innovation in this space. PayTM already has crossed the 100 million mark in terms of registered mobile wallet users in our country where total credit cards issued is just about 20 million. With 8 of the 11 enterprises to get payment licenses having their own authorized mobile wallet licenses, it will be interesting to look at some of Alipay's offerings which they can bring apart from innovating their own new offerings.
Alipay incentivizes users to maintain balance: For online payment service, Alipay holds the amount paid by the buyer in an escrow account. Only once the customer confirms having received the goods ordered in good condition and to their satisfaction, it releases the amount to the seller.
Alibaba's Proprietary Credit Score Sesame Credit: Using millions of transactions from its mobile wallet and e-commerce portal, the have generated a very granular credit score based on each individual's bill payment history. This credit score does not require you to take a loan or transact with a credit card and has turned out to be a win win for both customers and Alipay.
Super App Alipay 9.9: This is a recent upgrade to the Alipay that brings its users new features such as P2P payments, merchant loyalty and social messaging.
2. Mobile wallets
In India, merchants are charged anywhere between 0.75 per cent and 1.25 per cent for debit cards and 1.5-3 per cent for credit cards. IMPS launched 4 years back charges users just Rs 1 per transaction. Incentivizing merchants to accept mobile wallet payments is becoming a reality and will change the way you will make payments at merchant establishments. The mobile wallet market size currently is Rs 350 crore and is expected to quadruple in next 5 years. Ezetap Unified Payments Acceptance solution has recently tied up with four of the biggest wallet providers recently viz PayTM, Mobiwik, Freecharge and Novopay and are signing up merchants to accept Ezetap Mobile POS application
3. Unified Payments Interface (UPI)
The National Payment Corporation of India (NCPI) is launching Unified Payments Interface (UPI). This will soon allow mobile or website payments to become interoperable with instant payments. Allowing you to make payments through a single identifier like Aadhaar number or virtual address. This will be a big boost to the booming e-commerce industry allowing players to seamlessly collect funds through the "collect" feature on Cash on Delivery, without risking your account information. It will also help merchants tap you without any cards and will offer you multiple utilities on cash on delivery, bill splitting, merchant payments, and remittances. While mobile wallets do not allow wallet to wallet interoperability, UPI will be fully interoperable across all payment system players without having silos and closed systems.
4. Apple Pay
Apple launched this mobile payment and digital wallet service in Sept last year and already has over 12 million users. The service allows Apple IPhone 6 models and some IPad models to interact with point of sale systems using a near field communication technology. They are now said to be considering using imessage to launch person to person Apple Pay service.
5. Other Disruptive Wallets
Google entered the financial space with Google wallet and in 2013 announced the integration of Google Wallet and Gmail, allowing users to send money through Gmail attachments. While some of these are not fully available in India, it may not be far away. Facebook is believed to be planning a person to person payments feature through its Messenger App.
How many times you have found yourself fumbling in your wallet for the right bank card? You won't have to do it in the future with wearables integrating as contactless payment solution rights from wrist bands, watches, smart rings and bPay jackets in various stages of development and use in various parts of the world. There is the famous Apple watch, Samsung Gear S2, Alibaba Pay watch and Sony Wena in watches, the Jawbone, Nymi and BPay wrist bands and Lyle & Scott bPay jacket with payment bit is hidden in the cuff of your sleeve. Smart Jewelry company Ringly is working on payment devices on rings and other jewelry.
Early days here but many companies are testing the use of fingerprints, voices, irises, vein patterns and faces to validate you when you are making a payment. MasterCard is working on a facial recognition technology to authorize transactions, Alibaba is looking at using a selfie to pay and verify with facial recognition. Samsung is looking at fingerprint, voice and iris recognition for its Samsung Pay offering, Apple which allows fingerprint authorization for iTunes purchases and payments with Apple Pay is strengthening this and Pulsewallet is using palm vein sensors.
While the traditional payment models of today will not disappear overnight, the increasing payment related innovations, perpetually connected customers and the rising smartphone and mobiles penetration will require a rewiring of long established systems and habits.
I am going to leave you with a few questions and would love to hear your views
- Is this the start of the Uber revolution in the Indian banking system?
- How long will it take to transition from a cash dominated economy to a near cashless economy with mobile and digital payments?
- Is India ready for such hyper competition in the banking space with 21 licenses having been given and more such licenses "on tap" in the future ?
Well, your guess is as good as mine. For the moment, are you ready to brace this financial storm?
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.