5 big Digital payments trends to watch for in 2017

As the narrative inevitably pivots towards re-monetisation and “the morning after”, the focus now has shifted to the “how” of getting India to a “less cash” state. This is, to state the obvious, a super large problem to solve. With myriad  dependencies and enablement requirements. Backbones and infrastructural bottlenecks, like in most other spheres in India need to be overcome. Solution sets will need to be crafted separately and distinctly for India and Bharat. The ideal economic and business model arrived at. Consumer literacy, awareness and adoption will be key workstreams to kick off. Sifting through the babel in this space, here is a distillation of the 5 key trends to watch for, to set up digital payments for broad based adoption in 2017 (and beyond):

1.      The fundamental 3 pillar foundation will remain pivotal – security, scaleability and interoperability. As digital moves to mass from niche, and new-to-digital rather than digital natives begin to form the bulk of the digital payments consumer set, security will be centre of plate for the regulator, banks and systems providers. Even as innovation proliferates, and banks and fintech players jostle for their shares, the key tenet of built for scale will become central to success, and sub-scale options or systems that are not industrial strength or lend themselves to rapid scale ups will fall by the wayside. And lastly, if digital payments have to succeed at scale, the medium of exchange must be nearly as universal as currency – therefore underscoring the need for interoperable and universal rather than closed loop systems. Watch therefore for early movers who have all of the above 3 foundations inbuilt into their models. And watch for the regulator/government encouraging “sandboxes” where within a pre-defined boundary condition, new players and new models are given scope to build out , learn and grow, while capping downside risk.

2.      Acceptance is central to the thesis. It is estimated that India is one of the, (if not the largest) cash displacement opportunities on the planet. With personal consumption expenditure estimated at $1 trillion, and less than 5% transacted digitally, rapid proliferation of acceptance points for digital payments is big trend #2. I personally expect that we will see more on the acceptance side done over the next year, than possibly the 5 years leading up to 2016. There are two areas of execution which we are likely to witness – a) categories of acceptance being broadbased . We have all heard that solving for the long tail of “kirana” and informal merchant category is crucial. And admittedly it is. However, if one were to logically splice the consumption expenditure pie, areas like citizen-to-government payments, education, utilities, healthcare and transportation are large non-discretionary expenditure categories for the common man with currently a non existent/very low digital penetration. Expect disproportionate action on these categories in 2017. B) form factors for accepting digital payments -  Installation of new POS machines in and by itself is necessary but not sufficient. And by definition it will be constrained by the capex/opex costs of procurement and installation. Therefore the need for convenient, cost effective, scaleable solutions that lend themselves to adoption in urban and rural contexts. Again, what’s good for one customer segment (smartphone enabled QR codes for instance) may not work for the other (feature phone, biometric). Similarly the use case in some cases will dictate the acceptance form factor. If one were to take tolls and rapid transport for example, reducing queue time is paramount, so solutions that are instant (think tap and go for example) will gain centerstage.

3.      We will see a fair bit of regulatory and market driven experiments on the pricing front. The “goldilocks” sweet spot to arrive at is that pricing must not be so high as to discourage acceptance yet not so low that banks, and other operators do not have any economic motivation to expand digital infrastructure and issuance. The required investments in technology and security have to pay for themselves. Expect more than a fair bit of debate and discussion on this front

4.      Wallet players and payment banks will experiment with the first wave of how to monetise their footprint. The most logical form of this seems to be in lending – the thesis being, repeated usage creates a consumer and merchant digital footprint, which then can be used as a surrogate for income assessment for banks/NBFCs/P2P players to need on a real-time, when needed basis. Fee-based services – selling insurance/mutual funds, contextual advertising and offers are the other options. And the success (or not) of these initiatives will help shape the notion of payments as a “free” or “freemium” funnel which can be monetised through x-sell or other allied means vs payments as a service.

5.      Lastly expect a “carrot and stick” approach to digital payments. Consumers and merchants can expect instant gratification (discounts, preference, rewards) , tax benefits, increasingly frictionless experiences, while on the other hand cash handling will likely become more expensive, clunky and come under the taxman’s lens. And transacting digitally because “I want to” as opposed to “ I need to” – the holy grail which payments players are aspiring to get to, will be the likely end stage.

Let the games begin! And wish you all the best of the season, and a happy, healthy and purposeful new year!