“The immediate effect of the lockdown on online payments is negative. Most online services, including e-commerce, travel (e-ticketing and hotel bookings) are not working. Apparel, e-commerce, movie and entertainment bookings and home décor sales contribute to the largest share, forming 40% of the total digital payments universe. Also, small towns, where digital payments had started growing, will take a hit as people are likely to avoid any kind of discretionary spending," said Sanjay Doshi- partner and head, financial services advisory at KPMG India.
With most e-commerce firms suspending delivery services, transactions for groceries and other essential items have shifted to local cash-based sources, added KPMG.
Online payment gateways are also reporting a similar decline in payment volumes with Naspers-owned PayU witnessing a 30% drop and Bengaluru-based Instamojo witnessing a 40% drop in volumes in March alone.
“Payment gateways like ours also seem to be reporting 25-30% lower transactions than the daily baseline due to scarcity of supply considering the lockdown. But the real challenge is the ‘uncertainty’ around how long this situation will continue, which everyone in the digital payments industry is trying to make sense of," said Harshil Mathur, chief executive and co-founder, Razorpay.
Mathur said offline payments are suffering much more since there aren’t many physical transactions. Overall, the offline payment universe might be witnessing a drop of around 70% in payment volumes at the industry level.
This is also because larger retail stores, and food and beverages (F&B) outlets, which contribute significantly to the offline payments space, continue to be shut.
“Given that the vast majority of 10 million offline stores on board our platform remain closed, we are currently seeing a decline across merchant payments across all categories except grocery, healthcare and other essential services. This includes almost all stores, or physical establishments, that are closed for categories like lifestyle, electronics, entertainment, and a few other categories like F&B ," said Karthik Raghupathy, vice-president, strategy and business development, PhonePe.
While categories like travel and hospitality have witnessed a decline, others, such as insurance, grocery, gaming, over-the-top (OTT) and edtech, are covering up with increased payment volumes.
“Categories, including insurance, grocery, OTT, gaming and even education, to a certain extent, seem to be covering up for the lost volumes. While insurance has higher ticket sizes, which is covering for overall payment value, grocery-based transactions are holding up for payment volumes, in spite of a bottleneck in supply," said Mohit Gopal, senior vice president and strategy head, PayU India.
According to internal data collated by Instamojo, payment categories, including online teaching, consulting services, food, grocery retail, digital content and NGO donations, have seen an average increase of 30% since the lockdown was imposed on 24 March.
For PhonePe, use cases such as recharges and bill payments have witnessed 50% increase in transactions.
Digital payment players are hopeful that once the lockdown is lifted, payment volumes will return to normal, with a change in user behaviour.
“We believe that once the lockdown is relaxed, the first industry to scale will be online. Most people will order from e-commerce and like to pay digitally, causing a fundamental behavioural shift," added Harshil.
According to KPMG, the lockdown and social distancing will force people to change their behaviour on using online payments for bills, utilities, education, fund transfer, salary payments to domestic workers, labourers, etc, which will also influence business and operating models during normalcy.