Biggest Emerging Payment Opportunity

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The Biggest Emerging Payment Opportunity

All leading countries and their economies are built on strong financial services and payment infrastructure and practices. Many economies around the world, regardless of their strong regulatory environments, have lacked a robust financial services and payment infrastructure foundation.

A global pandemic and an unprecedented demand for digital transactions have prompted the world's lagging economies to double down on accelerated growth and the rollout of digital payments and financial services. So much so that some are considering going completely cashless in the future. Although that might take some time, countries that we thought to be predominantly cash transactions have not just made major leaps to digital but leap frogged technologies and are poised to become some of the biggest payment markets in the world.

Future leader in Faster Payment, already well on its way.

Take, for example, India, a case in point. You might be surprised to hear that India is poised to be a leader in real-time faster payments. At 48 billion, India accounts for the largest number of real-time transactions in the world today. There are already multiples of the USA, China, and several other countries combined. Real-time payments are already over 30% of all payment transaction volume. The rest are UPI and QR-based transactions. Consumers there are leapfrogging to mobile wallet-based payments instead of card transactions, so much so that real-time payments are expected to be over 70% of volume in the next four years and are expected to reach $300B in volume in a short period of time.

This year alone, real-time payments will save $12.5 billion, per the center of business and economic research. With the rise of real-time payments, those savings are expected to reach over $92 billion in the next short few years. The countries' cloud-first, data-centered approach is not only welcomed by consumers and businesses but is accelerating the transition to a cashless, paperless economy. Real-time payments are at the heart of improving liquidity in the financial services sector and making market transactions more efficient.

Integrated Finance is already way life.

Digital payments integration in mobile apps and frictionless experiences are already prevalent and common for a large number of consumers. These digital native, mobile-only economies have financial offers and products integrated into the purchases they make every day.

Bringing 500 M new consumers to digital payments using WhatsApp payments alone.

As the pandemic progressed and digital transactions were a saving grace, WhatsApp launched its payment service in November 2020, enabling peer-to-peer transactions for your WhatsApp contact list. A year and a half later, they have started to offer cash back to consumers using their payment system in order to retain and incentivize customers to transact on their platform. WhatsApp has partnered with RazorPay, dubbed as India's Stripe, to deliver cash back rewards and better financial inclusion in remote areas of the country. WhatsApp's monthly active users in India alone stands close to 500 M, and so incentivizing customers to use their payment platform is a great strategic move to reach their goal.

Every minute counts. Payments keep the consumer on the Facebook platform, which makes about $35,000 a minute of revenue.

Shopify partnership with Paytm Payment Gateway enabling ecommerce merchants with easy payment solutions.

The Paytm partnership enables merchants with not only UPI but also wallet, online banking, credit, debit, and BNPL solution options. Basically, enabling the popular check out options on all transaction surfaces where small business merchants sell. A great leap in terms of digital acceptance in an economy that was cash-focused until recently.

Prepaid and debit cards have had a major role to play in advancing digital payments

Banks are able to issue pre-paid cards to folks with no bank account, a major reason for growth. These cards were internationally accepted and were available in multiple currencies. The competitive nature of the pre-paid card business started a marketing and pricing frenzy that sparked custom offers, Buy One Get One Free, rewards and discounts. These card offers were mainly targeted at women managing small household budgets and young consumers aged 18–24 years. The government issued smart debit cards for low-value social benefits and subsidiaries. Not to mention, India's National Payment Corporation of India (NPCI) launched RuPay, India’s own card payment network to compete with Mastercard and Visa.

How digital financial transformation played out from 2020 to 2022 in India vs USA

According to a survey published by Statista Research Department on July 21, 2022, A survey conducted on digital payments in India in 2020 showed that around 79 percent of households used some form of third-party digital payment app, like Paytm and PhonePe. Meanwhile, the central bank-backed Unified Payments Interface (UPI) platform was used by 52% of households. On the other hand, only about 38% of households used debit or credit cards to shop online.

Consumers reported changes in their behavior during the pandemic year of 2020, according to the United States Federal Reserve Bank. The proportion of consumers who make at least one online purchase in a typical month increased from 59% in 2019 to 66% in 2020. The proportion of people who made at least one mobile phone payment in the previous 12 months increased from 38% in 2019 to 46% in 2020. Also, more consumers reported making at least one payment to another person in a typical month (52/48 percent), up from 48 percent.

Moving on to this year, in 2022, about 80% of American households are using digital payments. The number is well beyond that in India. So far in the fiscal year 2022, digital payments in India have totaled more than 239 billion Indian rupees.

Pre-Pandemic India was already poised for exponential payment growth

Even before the pandemic, J.P. Morgan 2019 Payments Trends – Global Insights Report Series, said India has the highest business-to-consumer e-commerce growth forecast of all the countries. India’s e-commerce market represents a fast-growing opportunity for the e-commerce industry. India’s online shopping sector is currently worth $36.5 billion, a value that has consistently expanded at double-digit rates in recent years.

India already a world leader in app-based payment methods

Mobile commerce is the predominant way to shop online in India; almost 50% of shopping happens online. Last year alone, the value of mobile commerce was estimated to be $50 billion. This extremely high growth in mobile commerce is attributed to smartphone usage, tech-savvy consumers, mainly the younger generation, and the lack of a domestic desktop to access the internet. Not to mention the cheap phones made in China and low-cost data plans.

India stands out in one aspect, and that is app downloads, which make mobile the predominant and preferred shopping surface. In-app transactions account for over 80% of completed mobile commerce.

India leading race to replace cash

The Indian market had been dominated by cash, just 7-8 years ago, 96% of all transactions in India were cash transactions.

Although card usage is low in India, it is used extensively for online shopping, along with wallets and UPI, which account for 50% of mobile transactions. Cash use in India is estimated to be at 10% in 2021. Although some urge it to be more like 17%.

That is a drastic U-turn from cash being the only method of payment less than a decade ago.

So there you have it. The biggest digital transformation taking place and the rise of digital payments is happening in emerging markets, so tune in and explore.

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P. S. Not everything is hunky dory, there are several challenges along the way to the promised land of India as emerging payment market. Let us discuss in Part 2.