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Digital Dividend: The New World Order Of Contactless Payments & Cashless Transactions

A recent RBI report estimates that digital payments have climbed more than five times since 2015 to 22.4 transactions per person as of March this year, with the country having as many as 87 apps alone offering digital payment platforms.

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The disruptive impact of Covid-19 and the subsequent global thrust towards a contactless world order could well emerge as the biggest catalyzing factor in the digitalization of life, commerce - and payments. Even as the pandemic is further accelerating the process, non-cash payments have been growing in India at the fastest pace ever. A report by Quartz highlighted that last year alone, digital transactions in India shot up by 55%, with the number of locations accepting digital payments growing to 10 million – nearly 7x up from around 1.5 million in 2016. Even as the number of merchants adopting digital payments has grown manifold, payment platforms like UPI, mobile wallets, Bharat Interface for Money (BHIM) and BharatQR are further fueling the digital payments revolution in the country.

A recent RBI report estimates that digital payments have climbed more than five times since 2015 to 22.4 transactions per person as of March this year, with the country having as many as 87 apps alone offering digital payment platforms. Given that our numbers are still way lesser than other mature economies – China witnesses 142 cashless payments per inhabitant, while Sweden’s tally is 529 – India has tremendous potential to up its digital payments ecosystem, and the current environment is ripe for a pivotal push in that direction.

The Catalysts – Fits & Starts, but onwards we go!

The unprecedented smartphone penetration and the simultaneous availability of low-cost, high-speed internet connectivity driven by an upheaval in the telecom sector in India have laid a solid foundation for a digital future. According to an ASSOCHAM-PwC joint study, the country has about 500 million smartphone users and the number is bound to increase in the years to come.

Smarter devices with stronger biometric capabilities, coupled with the simplicity of the payment platforms’ user interface, are enabling the growing popularity of digital payments across the spectrum. Digital payment solutions are gaining traction across geographies – from metros to rural areas, as well as across all sectors – from retail and groceries, to e-commerce, healthcare, daily utilities and food delivery.

Market savvy and proactive regulators are catalyzing, though not always uniformly (India has seen its share of policy glitches), the switch to digital payments through policy changes and reforms in licensing, data privacy, KYC norms and universal databases, while enabling a gamut of non-banking institutions, including fintech firms, NBFCs and payment banks.

The concurrent building up of use cases is further boosting the acceptance of digital payments – be it convenience, security, 24x7 availability, or the merchant ecosystem around payment instruments. Incidental benefactions like the Demonetization event (2016), Availability of capital as a disruptive play to break old and build new habits, and the current Pandemic as a mindset changing once in a lifetime event have contributed tremendously to the growth of cash-less payments.

The way forward – Technology First or Trust, or should one drive the other?

Even as the sharp surge in e-commerce and increasing smartphone penetration are contributing to the rising popularity of digital payments, the convergence of emerging technologies is rapidly transforming the payments ecosystem in the country. This tech-driven convergence is causing a fundamental shift in consumer demand and influencing the way consumers interact with sellers and facilitators. Paying for things is moving on from shelling out cash or even swiping the card, to tapping, waving or inputting payment data into personal phones and smart devices.

When it comes to the future of digital payments, a generation which is native to digital will prove to be a game-changer. This breed of tech-savvy populace will consider contactless and cashless as a way of life, but will be equally aware of the pitfalls of blindly adopting new tech.

Regulators will have the onus of walking the tight-rope between catching up with Innovation and protecting consumers against frauds. The challenge for the fintech sector will be to strike the balance between ease of access, flexibility and convenience with security and privacy concerns.

Even as voice and biometrics tech become smarter and sharper, technology under the hood will become key to delivering a secure and intimate experience. Artificial intelligence and machine learning will see unique implementations identifying patterns embedded in each interaction to further customize & secure the experience simultaneously rendering it as private as the user might want it.

Traditional value chains could/will get disrupted. Variations of Open Banking – a new financial services supply chain encompassing traditional banks, integrators, consumer-facing fintech and aggregators could lead to the emergence of new business models leveraging and monetizing the ecosystem beyond the traditional transaction fee.

As regulators and evolving technology gives users more control of how their data is used, we will see brands that stand for and instill trust in their consumers, lead the pack. Trust as a currency will trump convenience & experience for those who are truly valuable for financial services – the affluent.

Potentially the near future also holds finite outcomes to some cliffhanger debates of today viz. will there be wider acceptance of large global CUG digital currencies and will digital payments break the barriers of black money and tax trails. We may not find answers to all of them, but we are definitely looking at a new world order – one with lesser contact and cash, but with far more control, simplicity & security led by a generation which will not have seen otherwise.

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.

Vikas Chandak

SVP & Head - Strategic Businesses, Financial Products & Partnerships at InterMiles

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