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![Payments - A rapidly emerging industry
• With total payments approaching $9 trillion,
India’s payments industry has revenues of nearly $14 billion
• Payment flows are 7.8 times GDP
[Comparable to many Western countries and emerging
economies, such as Brazil (7.3), Italy (7.2) and the U.S. (7.0)]
• Payments contributes about 30 percent of bank revenues
• Meanwhile, electronic payments have grown significantly
• The mobile payments (m-payments) industry in India is
estimated to grow from $86 million in 2011 to $1.15 billion in
2016, with a compound annual growth rate (CAGR) of 68%
Source: McKinsey on Payments](https://image.slidesharecdn.com/indiasemergingpaymentsmarket-pradeepkharvi-160127153732/85/India-s-Emerging-Payments-Market-4-320.jpg)
Uploaded byPradeep Kharvi
India’s Emerging Payments Market
India's payments industry is rapidly evolving, driven by increased economic progress and financial inclusion, with a projected market growth from $86 million in 2011 to $1.15 billion by 2016 in mobile payments. Cash remains dominant for many consumers, particularly in rural areas, but electronic payment methods, including digital wallets and payment banks, are gaining traction as infrastructure improves. The future of the payments ecosystem in India looks promising, with expectations of multifold growth as various stakeholders work towards a less-cash and eventually cashless society.
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India’s Emerging Payments Market
- 1. Presentation By: PradeepKharvi India’s Emerging Payments Market From Cash to Tap…
- 2. Table of Contents •India’s Economic Progress • Payments - A Rapidly Emerging Industry • Mobile Payments in India • Payments Bank in India • Rise of Mobile Wallet in India • Evolving Payments Ecosystem • Conclusion - Payment Industry to Witness Multifold Growth
- 3. India’s economic progress/ Financial Inclusion • During last 10 years, enhanced job creation and household income have lead more consumers to use financial services • Increased per capita disposable income, Changing lifestyles & Growing popularity of online shopping • Central Bank initiative to increase financial inclusion (Pradhan Mantri Jan-Dhan Yojana) and expand banking operations to this unbanked population …have supported the growth of the payments industry
- 4. Payments - Arapidly emerging industry • With total payments approaching $9 trillion, India’s payments industry has revenues of nearly $14 billion • Payment flows are 7.8 times GDP [Comparable to many Western countries and emerging economies, such as Brazil (7.3), Italy (7.2) and the U.S. (7.0)] • Payments contributes about 30 percent of bank revenues • Meanwhile, electronic payments have grown significantly • The mobile payments (m-payments) industry in India is estimated to grow from $86 million in 2011 to $1.15 billion in 2016, with a compound annual growth rate (CAGR) of 68% Source: McKinsey on Payments
- 5. Banking and PaymentsCustomer Landscape
- 6. Cash Payments • Cashcontinues to be the most popular payment instrument for the majority of Indians, primarily due to a limited public awareness of other payment instruments, or little to no access to banking infrastructure, particularly in rural areas. • Cash is primarily used to make small-value payments to retailers, for the payment of utility bills, taxes and transport fares. • Among the rural population, cash is the dominant form of payment.
- 7. From Cash toCard • Low banking penetration levels suggest growth opportunities for banks, financial institutions and card issuers in India. As a result, banks have introduced a number of cards targeted at the unbanked population. • Consumer acceptance of payment cards gradually increased during last 10 years, as the government and banks have begun to provide basic financial access to the unbanked population. • This includes the expansion of infrastructure such as ATMs, the appointment of banking correspondents (BCs), the launch of new branches, in addition to specific efforts to change India’s consumer payment habits.
- 8. Payment Gateways inIndia • Although financial transactions in India are primarily paper-driven, electronic payments have witnessed noticeable growth in the last five years. • Consumers are increasingly using credit cards, debit cards and net banking for online purchases. • Payment gateways serve as the starting point for all online payments and are responsible for processing online transactions in secure & confidential manner. • Robust growth in e- commerce segment has led to corresponding growth in Payments gateway market in India. The market is expected to grow at a CAGR of 61% and reach $ 40B by 2016. • Payment gateway market in India is currently driven by a handful of players with banks such as ICICI, HDFC , Citibank, SBI having majority of the market share. • Third-party vendors include players such as CC Avenue, BillDesk and ECS. • In the past one year, international players such as Ogone and Naspers have entered the market with domestic players such as Paytm payments, Flipkart, Gharpay, Juspay & Zaakpay.
- 9. Burgeoning Mobile Market •India is experiencing tremendous growth in the use of Internet as well as Mobile • There are a just under a billion cell phone connections in India • India adds around 6 million new cell phones every month in usage • Although the number of Internet users low in comparison - around 200 million users • The conversion of cell phone users to mobile users is fast growing • As per telecom industry estimates, 65% of all new Internet users in India experience their first Internet surfing activity via mobile
- 10. Regulatory Support • RBIset guidelines for prepaid payment systems in India, aligning with the Payment and Settlement System Act 2007 • M-payments market is witnessing favorable regulatory environment in India with RBI relaxing norms on m-payment transactions and allowing institutions other than banks to provide m-wallet services • Creation of National Payments Corporation of India (NPCI) as a nodal infrastructure agency for small payments and real time payments using Immediate Payment Service (IMPS)
- 11. Mobile payment demand,business models, services and regulatory environments Source: EY, Mobile Payment Forecast
- 12. Mobile Payments inIndia • With 980 mn mobile subscribers growing at 14% y-o-y & nearly 41% unbanked population in India, M-payments has huge potential in India. • Availability of affordable handsets, low mobile tariffs and increasing voice & data network coverage across the country will emerge as key drivers for m-payments in India. • Lack of adequate banking infrastructure, low internet and PC penetration are expected to provide further impetus to growth of M-payments market. • The market is estimated to grow from $86 mn in 2011 to $1.15 bn in 2016 at a CAGR of 68%. Source: Study by Knowledgefaber Source: Capgemini - The Future of Indian Digital Wallets The total value of transactions through digital payment instruments stood at Rs 21,300 crore in the 2014-15 fiscal
- 13. Adoption of MobilePayment Services Source: EY, Mobile Payment Forecast Highest levels of uptake are in India
- 14. Payments Bank inIndia • Banking for the unbanked – Payments Bank • Currently, most Indians are unbanked and participation from private parties can boost the financial inclusion on ground level • The payments bank licensing will help make inroads in rural areas and play a bigger role in overall financial inclusion campaign • The move will immensely help lower income groups who do not have access to formal banking systems. E.g., if your maid, driver, gardener opens an account with the payment bank, you will be able to pay their salary electronically
- 15. Payments Methods CARD PAYMENTSALTERNATIVE PAYMENTS DIGITAL WALLET PAYMENTS • The shopper purchases goods or services using their Credit Cards, Debit Cards, Prepaid Cards & Gift|Loyalty Card • E.g. MasterCard, Visa, RuPay, etc. • Alternative Payments Methods do not rely on cards • E.g. Online Bank Transfers, Direct Debits, Mobile Carrier Billings • Digital Wallets allow shoppers to link credit cards or other alternative payment methods to a virtual wallet. • E.g. Paytm Wallet, Pockets, etc.
- 16. Low Penetration ofmobile in proximity payments • Penetration of mobile in proximity payments is currently negligible (less than 2%) • Issue: lack of necessary infrastructure for mobile payment acceptance • Total number of POS terminals in India is less than 700,000 which equates to 5.4% penetration • Retailers have little capability and incentive to acquire POS terminals • Lack of readiness of various players to interoperate in order to adopt the technology at scale • Mobile payment service providers and banks need to work together to create a seamless ecosystem for the technology to work efficiently
- 17. Rise of MobileWallet in India • Digital wallets have already become extremely popular with consumers • Mobile wallet market in India is projected to surge due to • Rising penetration rate of mobile devices, • Increased mobile Internet user base and • Growing government support • mobile wallet companies offering attractive deals • Usage of mobile wallet such as • Money or banking transactions, • Mobile recharge and bill payments, • Ticket bookings, • Utility applications, etc. • Approval of payment bank licenses of major companies, such as Paytm, Vodafone, Airtel, etc., is projected to drive growth in the number of banking transactions through mobile wallet over the next six years US$ 200 Million US$ 11.5 Billion 2022 2016 Expected Growth in Mobile Wallet Market
- 18. Evolving Payments Ecosystem Consumer Access Convenience Security Affordability Choice Flexibility Speedof Delivery Ease of use Payments banks expected to ensure availability of electronic payment point at 15 minute walking distance Easy to use application interface, availability of content in vernacular languages will improve customer experience E-commerce like speed in delivery of financial services, mobile as chosen channel for delivery Unique needs of customers will be met as technology enables flexibility and customization of products at efficient cost Combination of mass market and niche bank and non-bank players providing ample choice to consumers New bank licenses and well funded fintechs will ensure price wars, at least in the short run Front and back end authentication and firewall measures to enable increase in customer trust Easy documentation, quick and hassle free KYC processes will incentivize utilization of financial services Evolving Payments Ecosystem to address Customer Pain Points
- 19. Conclusion - Paymentindustry to witness multifold growth • India, the “elephant ready to dance”, is bubbling with economic activities across the spectrum of the society • This industry has been growing steadily over the past few years. Card transactions, both by debit and credit cards, are on an upward trajectory • The rapid growth of smartphones, Internet penetration and e-commerce is complementing these; • 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 • 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
- 21. References • McKinsey onPayments – A strategic review of India’s emerging payments market • McKinsey on Payments - 16 in 2016: Trailblazing trends in global payments • PWC - Disrupting cash : Accelerating electronic payments in India • EY - Mobile money : the next wave of growth • TOI Article - Mobile wallets: All you need to know • Business Standard Artic - On the fast track from bricks to clicks • letstalkpayments.com - Payment Market in India • India Today Article - Banking for the unbanked • The Cards and Payments Industry in India Emerging Trends and Opportunities to 2019 • CapGemini - The Future of Indian Digital Wallets
Editor's Notes
- #5 The gross domestic product (GDP) is one of the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period; you can think of it as the size of the economy.
- #9 DEFINITION of 'Compound Annual Growth Rate - CAGR' The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer than one year. To calculate compound annual growth rate, divide the value of an investment at the end of the period in question by its value at the beginning of that period, raise the result to the power of one divided by the period length, and subtract one from the subsequent result. Read more: Compound Annual Growth Rate (CAGR) Definition | Investopedia http://www.investopedia.com/terms/c/cagr.asp#ixzz3y9ryG720 Follow us: Investopedia on Facebook
- #13 the market for mobile enabled payments in India has grown more than 15 times to reach its current size of US$ 1.4 billion by the end of FY’15 from US$ 90 million at the end of FY’12 Utility bill payments currently hold a share of 34% of the mobile payments value, while prepaid top-ups and domestic remittance hold 30% and 26% respectively Paymate, Mchek & Oxycash have emerged as major players and together make up for nearly 80% of m-payments market in India . Other players include ITZPay, ZIppay, Obopay & N.G Pay.
- #15 WHAT ARE PAYMENT BANKS? -These entities have been created to accept deposits through savings accounts of up to Rs 1 lakh from each individual. -These banks will issue you a debit card and an ATM card, but not credit cards. -You will be able to invest in mutual funds or insurance policies through these accounts provided the amount doesn't cross the Rs 1 lakh limit. -It will also offer remittance services, helping people who do not have access to formal banking systems. -But unlike a traditional bank, it will not provide you loans. WHAT IT MEANS FOR YOU -The move will immensely help lower income groups who do not have access to formal banking systems. For example, if your maid, driver, gardener opens an account with the payment bank, you will be able to pay their salary electronically. -In turn, people from the lower-income groups will be able to remit the money back home to their families. -It will provide you a platform to pay bills online through a separate account, without divulging details of your main bank account. -Currently, most transactions in India are done in cash. It will be a step forward in facilitating cashless transactions. -Most importantly, since the cost of access will be low, payment banks are likely to offer higher interest rate. HOW IT IS DIFFERENT FROM MOBILE WALLETS Currently, semi-closed wallets such as Airtel Money do not permit cash withdrawal or redemption by the customer. Payment banks, however, do not have such restrictions. Vice President (Product and Strategy), FINO PayTech, Shailesh Pandey says, "Mobile wallets are a subset of payment banks. Wallets do not allow you to cash out but you will have such facility under payment banks. In addition, payment banks will offer you a host of facilities ranging from opening an account to remittance services." WHEN WILL THE LICENCES BE ISSUED? -The in-principle approval will be valid for a period of 18 months, during which time the applicants have to comply with the requirements prescribed by the RBI. After the fulfilment of all conditions, the RBI will consider granting them a licence. The chosen entities cannot start banking business until a regular licence is issued to them. -The new category of banks can revolutionise the banking and payment system. Experts say it is best to wait and watch how it turns out.
- #17 Payment Market in India. India has a burgeoning desire for internet on mobile, and the same should be expected for payments and commerce on mobile. Although mobile payments have been available in India since 2010, with more than 900 million mobile subscribers, only a small fraction of the mobile users make payments through mobile devices. Companies such as mChek and Beam Money who were early innovators in the space have already closed down. Earlier mobile transactions involved typing out complicated SMS messages for making payments. Furthermore, the whole process of payment was dependent on the telecom network. However, with increased Smartphone penetration, app and wallet based payment solutions, the problem of dependence on network operators and the complexity in sending SMS to enable payments have been addressed. According to a recent report by Growth Praxis, the market for mobile enabled payments in India has grown more than 15 times to reach its current size of US$ 1.4 billion by the end of FY’15 from US$ 90 million at the end of FY’12. There are clearly some encouraging signs even underneath the macro numbers. While the foundation of technology enablers and building blocks get stronger, there is also a better appreciation today of the similarities and differences of the Indian ecosystem relative to other markets that have faced similar growth challenges. A careful analysis of the report by GrowthPraxis indicated that mobile payments in India are predominantly used for remote payments. Payment services offered by mobile payment companies are currently in the realm of conventional net banking. Utility bill payments currently hold a share of 34% of the mobile payments value, while prepaid top-ups and domestic remittance hold 30% and 26% respectively. Ease of merchant acquisition is expected to enable the prepaid top ups market, to grow the fastest at a rate of 38% followed by P2P remittances when it comes to mobile payments. On the other hand, the issue of merchant on-boarding might inhibit the growth of m-shopping, which is broader than what is typically offered as m-payments. However, the penetration of mobile in proximity payments is currently negligible with less than 2% flowing into it. The fundamental issue with proximity payments is the lack of necessary infrastructure for mobile payment acceptance. The total number of POS terminals in India is less than 700,000 which equates to 5.4% penetration. To add to this concern, more than 13 million retail establishments are fragmented across the country with almost little capability and incentive to acquire POS terminals. Another key challenge in implementing proximity mobile payments in India is the apparent lack of readiness of various players to interoperate in order to adopt the technology at scale. Mobile payment service providers and banks need to work together to create a seamless ecosystem for the technology to work efficiently. On the solutions side, none of the incumbents’ mobile payment companies are currently set up for the mass market. All players solve specific problems with limited geographical reach. The partnership model which is presently taking off in other developed economies is still yet to gain traction in India. The future of mobile payments in India depends largely on the payments bank license which is to be provided by RBI. Both telecom operators and third party payments service providers have applied for the license. Companies like Paytm, essentially technology companies operating in the transaction space, do not have physical retail networks, particularly in rural areas, where a large section of the currently unbanked population resides. On the contrary, telecom operators can at least make use of their network indirectly (RBI does not allow telecom companies to use their network for payments bank) for last mile connectivity. However, those with payments bank license will be able to allow cash withdrawals through a wallet which would solve a portion of the problem. International remittance which is currently not allowed for non banks can be offered through payments banks’ wallets which will be an additional revenue stream. Although payment banks will allow cash withdrawal, international remittances etc., the proliferation of mainstream proximity mobile payments in India still seems to be a distant dream. http://letstalkpayments.com/mobile-payments-market-in-india-grew-by-more-than-15-times-over-the-last-4-years-proximity-payments-low/
- #18 India's Mobile Wallet Market Is Projected to Generate $11.5 billion by 2022 the number of transactions via mobile wallets in 2014-15 stood at 255 million, compared with 172 million transactions through mobile banking