Deepak Chandnani

The author is Managing Director, South Asia & Middle East, Worldline

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What to Expect in 2018 in the Payments Industry

We expect digital transactions to continue to grow in double digits through 2018, with all modes of digital payments growing; with Debit Cards, QR code, UPI based transactions leading the way both at physical merchants and Internet merchants.

2017 was an exciting and fast-paced year for the payments industry with Fintechs, Banks, Card associations and the Government all driving new initiatives. As a result, in the months following demonetization, digital payments were on a never-before witnessed high, increasing the reach, volume and value of non-cash payments. Digital transactions have more than doubled and a large number of new consumers have adopted the new way, a welcome break-away from the traditional dependence on cash.

Before I get to 2018, it’s important that we reflect on what has happened over the last 3 years.

1. Let’s start with the Prime Minister’s Jan Dhan Yojana. This financial inclusion campaign was launched by the Prime Minister on 28 August 2014. He had announced this scheme on his first Independence Day speech on 15 August 2014.Under this scheme, 1.5 Crore bank accounts were opened on the day of its inauguration. This achievement was recognized by Guinness World Records as stated in its Records Certificate as "The most bank accounts opened in 1 week as part of a financial inclusion campaign is 18,096,130 and was achieved by Banks in India from 23 to 29 August 2014". By 1 February 2017, over 27 crore bank accounts were opened and Debit Cards issued.

2. To augment card acceptance infrastructure for the use of debit cards, a major drive was undertaken between December 2016 and March 2017, resulting in an increase in the number of card acceptance terminals (Point of Sale machines) by an additional 12.54 lakh - up from 15.19 lakh as on 30.11.2016. Further, to improve such infrastructure in villages, 2.04 lakh PoS terminals have been sanctioned from the Financial Inclusion Fund by NABARD.

3. Yet another landmark move of demonetization, made on the eve of 8th November 2016 by the Government of India, was aimed at catalyzing the nation’s digital payments, along with curbing corruption and black money in the country.

4. In continuation of this drive toward digital payments, other initiatives the Government announced in 2017 include:

  • Launch of Digishala - a 24-hour TV channel to educate millions of citizens about digital payments.
  • Launch of an Aadhaar based mobile payment application, BHIM (Bharat Interface for Money) at the Digi Dhan Mela.
  • A dedicated helpline by NITI Aayog, ‘14444’, in collaboration with NASSCOM and telecom operators, to address all queries regarding digital payments.

5. In addition, most recently, effective 1st January 2018, the Government has announced that merchants do not have to pay any Merchant Discount Rate to acquiring banks for transaction on Debit cards, UPI, BHIM and Bharat QR of upto Rs 2000. Further, small merchants with an annual turnover of below Rs 20 lakhs will pay a reduced Merchant Discount Rate of 0.4%/0.3% for Point of Sale/UPI&QR based transactions that are over Rs 2000. There is also a cap on the maximum amount of Merchant Discount rate that can be charged from a merchant irrespective of transaction value.

6. It was also an eventful year in terms of regulations for the payments’ industry. P2P lending start-ups are now recognized as Non-banking Financial Companies (NBFCs), although they will operate under prescribed guidelines for leverage ratio, lender exposure and restrictions on loan guarantees. Earlier this year, the Reserve Bank of India (RBI) also issued new guidelines for e-wallets, mandating higher capital requirements for issuers of prepaid instruments (PPIs). Wallet users now need to adhere to full know-your-customer (KYC) norms in order to use their wallet for amounts above the limit prescribed by RBI. The RBI has also introduced phased opening-up of inter-operability among digital wallets, something that is essential for the growth of wallets.

As we step into 2018, the momentum towards digital payments is palpable

  • The infrastructure to enable digital payments has been strengthened through issuance of debit cards, roll-out of Point of Sale machines, launch of phone-based acceptance through the BHIM app and the Bharat 4.0 app that allows seamless acceptance of QR code and UPI based payment.
  • At the same time, incentives have been provided to merchants to accept digital payments through the new Merchant Discount Rate rules
  • The RBI is helping make digital payment instruments like Wallets more viable
  • Along with these initiatives, the Government has concomitantly undertaken a massive consumer education and information campaign.

As a leading player in the payments industry, we have seen a sustained doubling of card transactions at merchant locations compared to the pre-demonetization level. While there is rationalization in the market in terms of ‘de-terminalisation’ of Point of Sale machines with some merchants, we have seen these being re-deployed at other merchants. As a result, the number of merchants accepting digital payments continues to grow. At the same time, it is encouraging to see the sustained spike in Debit card transactions and a drop in the average value of transactions, which points to the increased use of Debit cards for everyday purchases. We have also seen a steady increase in the number of digital transactions through the use of payment gateways with consumers adopting Internet and mobile payments.

We expect digital transactions to continue to grow in double digits through 2018, with all modes of digital payments growing; with Debit Cards, QR code, UPI based transactions leading the way both at physical merchants and Internet merchants. With all these form factors available, it is now time to increase investment in consumer education as well as focus strongly on prevention of fraud so that millions of new users and merchants do not have any reason to lose confidence in digital payments

And finally, as the Internet of Things (IoT) sees more takers, connected devices and payments should see some early experimentaion. Banks and other financial institutions have also started developing use- cases for innovations like blockchain technology and this will see some adoption as more players find successful uses for it. In sum, excitement, fast pace of change and adoption of digital payments will continue. We still have a long way to go with an economy dominated by cash and trying to break these shackles.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house

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