Digital payments get Fintech push

Riding on UPI, more people are taking on digital payments, and although India has a long way to catch the leaders, its growth is only next to China. UPI has brought a big change in peer to peer payments and lot of recurring cash transactions have perhaps moved to UPI, which is a big positive for the payments ecosystem.

In financial technology space we have seen a couple of milestones, one in India where Razorpay a payments processing company, become the fifth Indian fin-tech player to hit a $1 billion valuation and other in Nigeria, where Paystack, a start-up for payments, which processes half of all online transactions, got acquired by Stripe for $200 million.

This growth in fin-tech comes with a spate of innovations over the last decade. Digital payments were the first disruption followed by digital lending. From the growth perspective India almost matches with China.

One of the biggest stories of fin-tech innovation to come out of India is the UPI. A digital payments instrument launched by former RBI Governor Raghuram Ranjan in 2016. It gained relevance, when India demonetised high-value currency notes.

Share of UPI in retail digital transactions (%)

COVID pandemic and physical distancing have provided further tailwinds to UPI. In September, UPI payment method made up nearly a quarter of the value of all retailer digital transactions. Greater smartphone ownership, lower transaction costs, and improved user experience are also spurring new business models in fin-tech.

Around 1.35 billion UPI transactions were recorded in the first 20 days of October, up 13% sequentially, while 1.8 million transactions worth ?3.29 trillion were clocked in September alone, primarily due to faster adoption of contactless payments during the COVID-19 crisis, accompanied by the festive season shopping spree.

India ranks third in a global list of 250 most promising fin-tech companies (Source: CB Insights)

Companies from the US dominated the list (136), with India at third place with 20 companies which include AirtelMoney, Razorpay, BharatPe and PineLabs in Payments, PolicyBazaar in insurance, Khatabook and Cleartax in accounting. Around 67 million payments were processed per day in India, which is one-eight of China and one-seventh of the US.

On the downside, we have failures in the UPI transactions due to network issues. The reason for the failure in UPI is inherent in the system's architecture, where UPI requires uninterrupted communication between four to five servers in less than 60 seconds and any latency or break in communication will result in failure of transactions.

With payments now possible even without a smartphone using USSD 2.0, the UPI and digital payments story in India can only go further upwards, which will open up newer possibilities in fin-tech and beyond. After e-commerce and taxi rides, digital payments is emerging as the next major battleground between Indian startups and global technology giants. AirtelMoney, PayTm and Phonepe are competing with the likes of Paypal and Google. While the organisations fight it out at corporate level, Indian consumers can expect to emerge as the ultimate winner with a global payments experience.