The Hidden Benefits of Electronic Payments

Recently, I had the privilege of moderating a roundtable where deeply knowledgeable panelists from leading fintechs, banks and the National Payments Corporation shared their perspectives. What follows is a distillation of my thoughts and their collective wisdom.

The payments industry has exploded over the last decade. According to InvestIndia, 87% of Indians on the internet use digital payments. The global average, including the advanced economies, is only 64%! We do more than 4 billion Unified Payments Interface (UPI) transactions a month, "paying" in excess of Rs. 5 Lakh Crore ($60b approximately) in the process. The fintech industry has created in excess of $50 billion of shareholder value in this process. It is no exaggeration to say that the Payments business is one of the foundational pillars of Digital India.

One of the strands of digital payments is embedded payments. This term applies to those situations where the payments process is integrated with the product or services platform from where you're buying stuff. The most visible manifestations for many of us are the payments page on an Ecommerce platform and the (near) one click payment on a services platform such as Zomato.

When you contrast the sheer convenience, lack of friction as well as safety of these invisible processes relative to the "cash on delivery" alternative, you start to realize why embedded payments have become a feature in everyday lives. With the increasing popularity of UPI, embedded payments systems are only going to get more and more pervasive.

From the perspective of the business owner, the impact of digital payments goes even deeper than customer convenience, speed of transaction and the ensuing customer delight.

Many platform businesses such as Amazon are able to drive growth through a host of additional services enabled by embedded payments. For example, one can take an instant loan at the point of purchase on Amazon, thereby enabling the purchase of that expensive laptop, with payment installments over 12 months. This service, popular as "buy now : pay later" (BNPL) is a type of unsecured consumer credit product which would take a few days to process previously; now it is instant.

Uber is offering a "fill up your tank" instant line of credit service to drivers who are temporarily short of cash but otherwise have a reliable record of duty and cash management on the platform. This short term credit provision not just eases pain for the driver but also ensures continuity of supply for Uber. Similar short term financing schemes are often offered by business-to-business platforms to participating merchants who's transaction data is stored and processed by the platform. This is a critical provision of working capital for these merchants, many of whom are too small for the regular banks to service.

For PhonePe as well as other participants in the payments space, 80% of the growth in payment transaction volume is coming from Tier II cities and beyond. This is a very reliable signal that the digital revolution is penetrating deep into our society and economy. Which is very good news as it is a precursor to financial inclusion, delivery of digital health services and increased consumption in mofussil and suburban India. These communities can now participate in the digital and physical economy in the widest sense.

Going forward, as technology gets embedded in devices and "things" , embedded payments will follow. Already, many on the Indian highways have thanked the government for the compulsory implementation of the Fast Tag payments system, which has automated payments at toll gates and removed and major point for highway users. Private parking lots are adopting this platform for payments, increasing customer throughput and crashing time to exit.

You can now visualise driving into a petrol pump and the bill being paid by your "car" once the fuel is filled; the connected car will have an embedded digital wallet which will be automatically refilled from your bank account, should you so authorise.

At the other end of the financial spectrum, the RBI mandate for use of UPI is enabling quasi-embedded payments even for featurephone users. As there are some 600 to 700m Indians who still use these phones, this innovation is a Big Bang. It enables tremendous financial inclusion as these users can now take advantage of digital banking services, make easy remittances, buy products off their phones and even make investments in chosen products.

Finally, cyber security technology and techniques are advancing every day. The bad guys have to work harder and harder to break through, though they still do more often than they should be allowed to! I am confident that this battle will see the cyber security industry pulling ahead eventually, but there's some way to go yet.

Thus, while I am wildly enthusiastic about digital payments in general, and embedded payments in particular, I sign off with a note of caution. Use these technologies, with care.