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In the last two years, financial institutions and financial technology (fintech) companies have tested and implemented new technologies. In the process, some companies have changed tack to become enablers for banks while others are trying to scale up their business or enter newer segments. So what can one expect in the Indian payments industry in 2018 and beyond?

The good news is that the payments and fintech ecosystem in India has been growing rapidly, according to the EY Fintech Adoption Index 2017. The index, which denotes fintech users as a percentage of the digitally active population, ranks China first (69%) and India second (52%) in the list that comprises 20 countries. India’s percentage is much higher than the world average at 33%.

“In the last 16 months, UPI (Unified Payments Interface) became mainstream and the new version, which will have ‘mandate-based payment option’, will become even bigger. The same is the case with contactless payments and QR (Quick Response) code," said Deepak Sharma, chief digital officer, Kotak Mahindra Bank Ltd. You can also expect a change in the checkout payment option on e-commerce websites. Sharma believes that “an integrated experience" will work better than a revenue model based on just payments.

From a payment transaction point of view, banks have moved to a technology mindset in the last two-three years, said Sharma. Banks have been working on chatbots which solve basic consumer queries. The bots are further set to be used for enabling bank staff to help customers. “Similarly, biometric technology, which was so far used for on-boarding customers and identify them, will also be used as an alternative to signature on a loan agreement, authorization of a transaction, service request, payment and withdrawals," said Sharma.

Another big change is expected to come from voice-based technologies. “Digital payments are expected to grow from 5% of GDP now to 20% of GDP in the next 10 years. The foundation for much of this growth will be laid in the next two years in the form of platforms and partnerships. Voice-based assistants will help carry out transactions securely within and outside of banking apps, and bring digital banking and payments to the next set of users who do not transact digitally today," said B. Madhivanan, group executive and chief technology and digital officer, ICICI Bank Ltd. And as mobile payments proliferate into day-to-day activities, the average value of transactions will fall while volumes will increase drastically. “This will also lead to growth of small-ticket loans, instant point-of-sale credit, pay-per-day insurance and micro-investment products. Such sachet-sized products will be available instantly on consumers’ mobiles with negligible distribution costs," he added.

Over the last couple of years, banks have launched payment apps such as Ping Pay (Axis Bank), Buddy (State Bank of India) and PayZapp (HDFC Bank), and then their focus shifted to providing other payment options in their mobile banking apps such as Truecaller and Samsung Pay. Some of them now also provide prepaid cards and small credit products.

A lot has changed for e-wallets and digital payments companies as well. “The payments space changed dramatically in terms of acceptance. Till 2016, most of the payment apps were working on consumer features but now the focus has shifted to (wider) acceptance. With demonetization, the interest among merchants increased," said Deepak Abbot, senior vice-president, Paytm.

The good news is that the payments and fintech ecosystem in India has been growing rapidly, according to the EY Fintech Adoption Index 2017.

The changing economics of data in the mobile ecosystem has also boosted the payments space. “Two years earlier, only 40-50% of mobile owners used the internet on their handsets since data was expensive. Now internet on the mobile has become much cheaper, and the internet is no more a luxury but a basic need," explained Abbot. He believes that out of the multiple payment products rolled out in the country recently, UPI has clearly emerged as a “game changer" for the payments industry. “I would consider it as a fundamental change in the payments ecosystem. While wallets were popular, UPI gives direct access to the source of funds. The way UPI was conceived, it allowed companies such as ours to go beyond wallets," he added.

The movement of money has improved dramatically due to technology development in payment gateways. “Money is now moving as quickly as a WhatsApp message. There is innovation in gateways which has now reduced transaction failures. Even if a consumer makes an error, she is prompted to other payment options—which has brought in a 10% improvement in transactions," said Amrish Rau, CEO, PayU India.

As digital adoption increased, e-commerce also saw the shift. “E-commerce grew on the cash-on-delivery model. One trend post-demonetization was the increased acceptance of alternative payment channels. An interesting twist, in our study, was that people who don’t know English are finding it difficult to finish the last mile. So, interfaces will be created for over 225 million people who don’t use English," said Sreedhar Prasad, partner, e-commerce and startups, KPMG. Soon, e-commerce companies will integrate UPI on their payment options list. “UPI is likely to be the next wave for online payments," said Prasad.

And it is not just the payments companies and financial institutions that are interested in payments. “It is interesting to see Google, Samsung and WhatsApp entering the payments space," Rau said. According to him, five things will influence the payments arena next year. First, credit will move to alternative lending platforms. Second, the line between social commerce and fast commerce will get blurred. Third, social media and payments will get merged. Fourth, big data will be used exponentially. Finally, concluded Rau, “the use of QR code will see an interesting twist (it has seen uptake in China)".

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