In India, audio confirmations on a digital sound box have taken the place of cash register ringing on more than 6 billion different instances in just one month. The nation with the largest population in the world generated more than 10 billion cashless transactions in August when you include instances of consumers paying one another instead of retailers. They were all free, quick, and available online.
At least the majority didn’t. Since April, clients who use their mobile phone wallets to pay bills totaling more than 2,000 rupees ($24) are only subject to a maximum 1.1% fee if they are scanning a fast response code for a separate platform. This fee is paid by the retailer to his QR code service provider—either the locally-based Paytm or the Walmart-owned PhonePe—in exchange for integrating with Alphabet Inc.’s Google Pay. However, routine usage of the Unified Payments Interface, a standard protocol used to deposit and receive money into accounts at various institutions, is still free.
Banks do make an effort to charge high volume users a fee, and the government provides funding to encourage low value internet transactions and provide formal credit to underprivileged groups like street sellers. However, many lenders worry about being forced to stand on the sidelines and observe the growing tide of online payments rather than being permitted to ride it. How will India maintain an industry that, after starting from scratch seven years ago, has grown to trade close to $2 trillion in value annually?
It seems like these worries are exaggerated. India’s payment revenue increased to $64 billion last year, surpassing Japan and trailing only China, the United States, and Brazil, according to the most recent worldwide report from McKinsey & Co. A rise in digital commerce can be attributed to the rising tide of online transactions. Other boats have been hoisted as a result, like increased credit card use.
Innovation hasn’t been hampered by a lack of a business incentive either. Pre-approved credit lines are one of the new efforts that will augment the old payment protocol, which only lets users debit their bank accounts or wallet balances. Credit cards may now also be linked as of last year, but only if they are connected to India’s RuPay network. Visa Inc. and Mastercard Inc., who have complained about the lack of fair competition in the nation, would dearly love to be included.
Comparing it to other effective payment systems is not the same. While McKinsey anticipates that until 2027, fast payments, headed by the Pix platform, will increase by 50% of Brazil’s payment revenue from transactions, the equivalent percentage for India may not even be 10%.
Due to sheer volume, India’s profit from payments would increase. The nation’s 620 billion transactions were settled online in one-fifth of them last year. The number will increase to 765 billion by 2027, and approximately two thirds of these exchanges would take place online. Agile fintech companies would actively seek out any new opportunities created by technological or regulatory advancements. Nevertheless, “there is ample room for banks to pursue various use cases depending on their specific core competencies and strategic priorities,” the consultancy company argues.
Banks were initially hesitant to advertise the shared network for concern that it would supplant their proprietary programs. Those worries weren’t unjustified, even though the lenders gained access to the fourth-largest global source of payment revenue in the process of losing their moat. And this is only the beginning. New opportunities may emerge in related operations, ranging from fees on cards to interest revenue on credit lines. Paytm dispersed $1.65 billion in loans on its platform on behalf of lenders in the first two months of the previous quarter, an increase of 137% from the same period in 2017.
Even while the instant-payment system has gained enormous popularity, it has only begun to realise its full potential. The network’s operator, the National Payments Corporation of India, is expanding it internationally. When Indian tourists use their rupee wallets—funded by credit lines from local lenders—at stores abroad, from Paris to Singapore and Dubai, there will be plenty of fees and currency-exchange charges to be made.
It makes sense for Indian banks to maintain the status quo given that a gift served as a catalyst for a 38% increase in income the previous year. A dependable, quick, and cost-free online payment system has a lot to offer.
