India is going digital. From productivity to entertainment, Indians are increasingly reliant on technology to fulfil their myriad needs. However, while numerous facets of the Indian industry have adopted digital platforms readily, financial transactions remained anachronistically antiquated for a long while. This situation was turned on its head in late 2016 due to the demonetization move made by the Indian government. In an effort to curb the flow of black money, many cash note denominations were made defunct, leading to a nationwide cash crunch.
The initiative gave rise to the widespread adoption of mobile wallets and other digital transactions methods. The digital payment revolution is the biggest innovation in the Indian payments industry for years. There are numerous players such as PayTM, MobiKwik, Airtel Money, Idea Money, PhonePe, etc. vying for a sizable market share of Indian digital payments industry, which expected to reach $700 billion by 2022. Now news has emerged that tech giants Google, Uber, Facebook and Whatsapp are gearing up to enter this market.
So what does this mean for the future of digital transactions in India? And how will the industry react to this new development?
Mobile Wallet India: New Players Have Arrived
Emerging reports have suggested that Google is seeking approval from the Reserve Bank of India (RBI) to integrate the United payments Interface (UPI) with its Android Pay app. This comes among a slew of other reports outlining plans of several major companies to integrate UPI with their apps. Chief among them are Facebook and Whatsapp who are looking to integrate UPI with their chat messengers. Taxi hailing startup Uber is also working towards similar integration.
From Google’s perspective, this is a great move. Android is the dominant mobile operating system in India, with a 76.85% market share as of December 2016. This coupled with India’s 340+ million smartphone users provides Google an access to an extremely expansive user base. Such a large potential user base would give Google an instant leg up over its rivals. According to the National Payment Corporation of India (NPCI), Google will launch its UPI integrated wallet service within 2-3 months on a separate India focused app.
Like Google, Whatsapp and Facebook are also looking to integrate UPI with their chat messengers. They would be following Hike Messenger, who managed to beat them to the punch and release their mobile wallet. Just like Hike, integrating a social/messaging platform with a mobile wallet is a match made in heaven. Any payment service lives or dies based on the size of it userbase, and integration with a messaging platform provides unprecedented access to a massive amount of established users. This is a tried and tested strategy which has seen great success in the past, as in the case of WeChat in China.
Besides these tech giants, taxi-hailing startup Uber is also looking to get into the action. They are reportedly planning UPI integration on their app to allow customers to pay cab fare using existing UPI IDs. Currently, 60% of Uber drivers get paid in cash, something which could change drastically due to UPI.
Despite the financial muscle and huge user bases these companies enjoy, there are significant hurdles for them on the road ahead. One issue is that Google, Facebook, Whatsapp and Uber are all late to the party. Mobikwik and PhonePe are two mobile wallets that already support UPI payments. Whatsapp and Facebook also have a direct rival – Hike Messenger, who has blazed ahead of them for now. The situation is similar with Uber too; their local rival Ola has already implemented UPI functionality. Arriving too late could potentially be a death sentence in such a cutthroat industry.
These companies would also have to partner with banks to enable UPI payments. This along with the need to comply with RBI norms could pose several roadblocks on the way.
Lastly, but perhaps most importantly, these companies would have to face up against PayTM. PayTM is currently India’s largest digital payment platform with over 218 million users. While PayTM currently does not support UPI, it will do so sometime in August, strengthening its position even further.
State Of The Industry
The digital payments industry is growing at a rapid pace. From 2011 to 2016, the industry grew at a CAGR of 28%. However, the industry recorded a massive growth of 55% in 2016-2017 alone, owing largely to demonetization. During the same period, cash in circulation has also gone down. From 2011 to 2016, around 12% of the GDP was in cash circulation. This number has reduced to 8.8% in 2016-2017. This amply demonstrates the growing digitisation of financial transactions in India. An analysis by NITI Aayog also disproved the notion that digital payments were suffering again post demonetization. All of this points to one simple fact – Payments in India are going digital. In fact, more than 80% of India’s urban population is expected to adopt digital payments by 2022, as well as around 70% of retail chains.
It is clear that the payments space in India is a very lucrative prospect for the coming years. Now as new players enter the game, prepare for the competition to heat up.