The payment industry in India is expected to witness multifold growth in the next few years with the entry of payments banks and small finance banks and several payment modes like mobile wallets and prepaid cash cards.
Further, it will be interesting to see how bigger banks, payments banks, small banks, wallet providers and payment service providers work in tandem to drive financial inclusion. Still, one can safely say that these changes will boost e-transactions, which represents a good business opportunity for every player in the payment industry.
This industry has been growing steadily over the past few years. Card transactions, both by debit and credit cards, are on an upward trajectory. Debit card transactions have climbed 36.5 per cent CAGR over the past 5 years, while credit card payments have grown at a CAGR of 21.3 per cent.
There are interesting dynamics at play in the Indian payments industry. With payments going digital and the focus on financial inclusion, one can expect much in the coming years. “One big leap for the industry will be the incentivisation of card/electronic payments,” said Deepak Chandnani, CEO, Worldline South Asia and Middle East. “Should these moves translate into action on the ground, we are bound to see much higher use of cards and electronic payments by consumers.”
Debit cards have been on an upward surge consistently for the past 5 years. In the period from FY11 to FY15, the number of debit cards issued grew at a CAGR of 20.7 per cent. The last year saw a big jump in the opening of new bank accounts and the issuance of debit cards, due to the Centre’s push under Jan-DhanYojana, due to which debit card base grew by more than 40 per cent in 2014-15.
The credit card industry in India sees greater acceptance among consumers this year. According to Worldline India Card Payment Report 2014-15, the credit card base grew at 9.8 per cent in the past year. Worldline India is a leader in the payment and transactions services in the country. Alternative methods like mobile wallets and prepaid cash cards accounted for 3 per cent of digital transactions.
In today’s scenario, said Mr. Chandnanai, no bank can grow without offering all these options, be it to pay merchants, make remittances, open deposits or make loan payments etc. and ensure that the consumer is able to do so through their preferred channel, “be it in person, through the PC or mobile.” More facilities will help retain existing customers and bring in new ones. “Spending patterns and consumer segmentation help banks and merchants offer better targeted services to users.”
Public sector banks now account for 83 per cent of debit cards in circulation, while private banks account for 57 per cent of credit cards. The e-commerce industry has made it convenient for even perishables and small value items to be purchased online. With the growing adoption of online shopping, e-transaction volumes are set to increase. Also, payments have grown to include loyalty cards and prepaid instruments which further widen the scope of payments and their role today.
While discussing the role of payment industry, Mr. Chandnani said that with payments banks on the horizon, financial inclusion is set to see a boost with the opening of small accounts and consumers being encouraged to make bank deposits.
“Smooth, simple and secure payment processes will help bring about behavioural changes and faster adoption of digital payments and banking among un-banked segments,” said Mr. Chandnani, adding, building trust among new consumers is necessary for ensuring that the unbanked not just open bank accounts “but conduct transactions as well.”
When new players enter the market, each with a slightly different take on the market and with differing business models, the increased competition will help the environment and offer more options for consumers to choose from. A larger pie with more players is definitely good for the changing dynamics of the payments industry, which is still nascent in India.
Indian consumption is still dominated by cash, with cards contributing only 5 per cent of the personal consumption expenditure. In developed countries, 30-50 per cent of spends happen through cards. So there is huge growth opportunity.
“The payments landscape in India is at a point of inflexion, with consumer behaviour, government/regulatory initiatives and investor appetite all being in sync,” says T.R. Ramachandran, Group Country Manager, India and South Asia, Visa.
The rapid growth of smartphones, Internet penetration and e-commerce is complementing these; card payment volumes have been growing in excess of 25 per cent y-o-y. “We expect this trend to continue, aided by the continued increase in debit card activation and usage; debit card transactions have been growing at 31 per cent each year,” he said .
Intense competition and strategic collaboration among existing and new market participants like the payments and small banks and wallets will help scale up acceptance and foster more creativity, innovation and consumer choice. According to him, the future holds exciting times for the payments industry in India, as all stakeholders and regulatory authorities come together to achieve a “less-cash dependent” and eventually “cashless” society.
