United Payment Interface (UPI) has been by far India’s biggest and boldest payments bet thus far. However, we are in the midst of a full-blown digital revolution in customer behaviour and the intensifying competition is expected to lead to numerous innovations, the success of which will depend on the level of customer experience and the impact on reducing usage of cash.
This was started largely by non-bank digital entrants who focused on process bottlenecks, recreated customer journeys and ignited the process of reshaping the payments landscape. The boundaries have been blurring between the physical and the virtual. In addition to being helped to an extent by regulatory arbitrage, the growth of non-bank entities has been an outcome of a paradigm shift in the financial ecosystem: emergence and rapid growth in e-commerce, proliferation of smartphones, and customers looking for simpler methods to pay.
However, the simplicity provided came at the cost of interoperability. For instance, transaction volumes of mobile wallets peaked long back in April 2015 and the usage has been largely restricted to cab aggregators.
On the contrary, the mobile banking apps offered by banks have witnessed continuous innovation and as a result the average transaction size has grown from around Rs1,100 in the financial year (FY) 2012-13 to above Rs10,000 in FY16. Two of the critical success factors for mobile banking apps are: user experience and continuous innovation. And these can lead to transformational shifts in their market share.
In the case of private sector banks, with a mere 11% of customers, they have 21% of deposits, 40% of retail loans, 60% of all mobile transactions, 64% of point of sale (PoS) terminals and 77% of credit cards.
The government has taken many proactive measures, enabling the digitisation of payments to become a possibility.
The Pradhan Mantri Jan Dhan Yojana, with universal access to banking and enrolment of nearly 100% of adults under Aadhaar, can provide the authentication medium.
In addition, the falling prices of smartphones and data bandwidth are leading to their widespread usage.
In spite of all of these, transaction banking in India continues to be cash dominated. The key issue that service providers need to address here are:
•the lack of a compelling value proposition that is better than the prevalent methods on cost and convenience,
•ability to address and assuage security and fraud concerns and
•build a low-cost and reliable acquisition infrastructure to ensure widespread merchant acceptance.
The ability to build a compelling value proposition would require service providers to build a 360º view of customers’ finances and this is where banks would be better positioned than non-bank entities.
However, it will not suffice to restrict oneself to mere miniaturisation of online banking.
Mobile apps of banks have ventured beyond the mundane activities, allowing customers to: better control their debit and credit cards, avail customised bundles involving multiple products, book test drives of newly launched cars and take auto loans, and even get an get an augmented reality view of a new home and initiate a home-loan application.
These features, which are enhancing the customer engagements linked to payments, allow customers to seamlessly make payments to complete the transactions and not use the banks’ app merely for payments.
Even in the field of payments, we are witnessing a host of newer technologies like contactless payments (near-field communication or NFC), host card emulation technology, and tokenisation, which can make payments simple for consumers without compromising security.
The new technology, coupled with interoperability of banking instruments, may remove the need for customers to transfer balances into a separate instrument to make small-ticket, low-friction payments.
Technologies like mVISA using QR codes and UPI should enable permeation of merchant acceptance into smaller towns and smaller merchants.
Another area of evolution is the Internet of Things (IoT). You can expect your bank to create products that would connect with you at a deeper level but in a non-intrusive manner.
For example: by linking to your fitness band, financial service providers could encourage you to meet your fitness goals. They could track your health data and create customised insurance plans at the lowest possible annual premiums, by partnering with various health services providers.
The key to success is to re-imagine customer journeys in a digital context and design the engagement for moments of truth.
Along with it, there is a need to create an ecosystem of partners and work towards co-creating. Banks are working towards setting up of innovation labs that don’t just experiment with newer ideas and technologies, but also work towards providing a formal support structure for entrepreneurs working at innovative solutions.
These trends just represent the next wave in digital payments and don’t add up to a tsunami as yet. Big data will no doubt get a lot bigger with billions of devices capturing our every move. The ability to harness the strength of the tsunami would require one to convert all this data into actionable financial insight for the customers.
Nimble and agile organisations are poised to become successful; those who do nothing, could possibly become obsolete.
Time will tell.
Rajiv Anand is executive director, Axis Bank Ltd