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View from India: Digital payments accelerating with RBI support

Digital payment gateways are in for a boost, as the Reserve Bank of India (RBI) has initiated a panel to strengthen the digital ecosystem for cashless transactions.

We’ve begun the New Year with an official announcement from the Reserve Bank of India (RBI) stating that a high-level five-member panel has been constituted to encourage digitisation of payments and enhance financial inclusion through digitisation. The RBI is India’s central banking institution that controls the monetary policy of the Indian rupee.

Headed by technocrat and Aadhaar architect Nandan Nilekani, the high-level panel will provide a road map for increasing customer confidence, as well as introducing measures to strengthen the safety and security of digital payments. The panel is expected to submit its report within 90 days and will also outline a medium-term strategy for deepening digital payments.

Clearly, the accent is on securing online payments; as this announcement has come soon after RBI released guidelines for tokenisation for debit / credit / prepaid card transactions. In simple terms, tokenisation involves a process in which a unique token masks sensitive card details. Thereafter, in lieu of actual card details, this token is used to perform card transactions in contactless mode at Point of Sale (POS) terminals and Quick Response (QR) code payments.

Only the authorised card payment networks can offer card tokenisation services to any token requester, which is a third-party app provider.

Seen in perspective, this announcement is a treasure trove for payment providers. It’s a clarion call to expand the digital payment footprint across electronic formats. This will include online payments, mobile payments and crypto-currencies through mobile wallets, net payments, digital wallets, interoperable codes and contactless cards.

Non-bank payment platforms will gear up to compete with the banking scenario. They will create a suite of online card options and specific mobile apps for peer-to-peer and peer-to-merchant transactions. The customer base too is varied, and has potential to scale nationally and even globally.

Like a Pandora’s Box, the process will unleash tons of data, much of which is in silos and needs to be structured and unified. This by itself will uncover patterns in customer profiles and offer an undeniable value proposition that can influence the retail scenario.

In the coming months, customer payment behaviour and customer insights will come to the surface through multiple payment channels. There will be a greater emphasis on data security and privacy. Revenue streams for data security companies will unfold as the spotlight is on a secure environment for transactions. Digital inward remittance, a consequence of cross-country money transfer will increase.   

It’s an opportunity for startups to work with card providers. A market will be created for innovative products with credit facilities.

The Government of India (GoI) itself has opened out channels for digital payments. The citizen-to-government payments happen digitally. The 2016 United Payments Interface (UPI) further paved the way for instant real-time payment system. Based on interoperability, the system works by instantly transferring funds between two bank accounts on a mobile platform.

As the payment gateway sphere broadens up, investors can also put their money there. The advantage is that all it requires is a low-cost set-up for electronic payments in place.

From the consumer point of view, merchants with limited computer knowledge will transact digitally by sending out payments and invoices. This can give rise to new businesses, many of which are local in nature.

From business point of view, online retailers can monetise on the upcoming trend by converting the occasional buyer to a regular one. Again another business trend to watch out for is social media platforms doubling up as digital marketplaces. Social commerce (s-commerce) on Facebook, YouTube and many Indian unicorns is fast picking up because the platform is easy to set up and has low overheads. Also, given its very nature, social media is not just an onsite purchase platform, but is also a means for people to do away with discarded stuff. Trading in secondhand goods has given birth to s-entrepreneurs.

In another sense, new digital payment touch points are expected to quicken end-to-end transactions while also cutting down processing measures associated with the physical world.

Overall, as the accent is on digital payments, we can look forward to new business models along with a growing fin-tech community. This will also raise the bar for data protection and privacy. More important, we are all set to usher in a digital economy.

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