2017 has been a landmark year for India’s fintech industry. Technology has been the driving force behind innovative products and services that have transformed the way Indians perceive investments, transactions and the financial ecosystem as a whole. India witnessed an upswing in several areas, like new-age digital assets or cryptocurrencies, simplified payment instruments like UPI, BharatQR, digital wallets and government-led initiatives like GST and Aadhaar payments. Here is a snapshot of some of the top trends that impacted the financial ecosystem in India over the past year:
Investment in cryptocurrencies skyrocketed globally in 2017. There are numerous cryptocurrencies that are operational today, like Bitcoin, Ripple, Ethereum, Litecoin etc. India witnessed an unprecedented growth in cryptocurrencies this year, with Bitcoin being the most popular. There are more than 10 Bitcoin exchanges in India and most of them saw a sudden spurt in users since June this year.
This increasing interest in cryptocurrencies is yet to receive complete support from regulatory authorities. Digital currencies are effective, easy to transact and are traceable. Given how powerful the technology is, the government will soon need to roll out a sound regulatory system to monitor and regulate cryptocurrency usage. With both individuals and corporates investing in the technology, a well regulated system can transform India’s financial landscape and boost operational effectiveness like never before. Regulation will also play an important role in addressing the doubts and uncertainty regarding cryptocurrency related business models. Which in turn will encourage new businesses to build solutions around cryptocurrencies.
E-NACH and E-mandates
E-Mandates are digital mandates that replace the current paper mandate system of ECS, reducing processing time by almost 80%. This powerful digital system ensures that all recurring payments are made frictionless, with no OTPs, reminders and late fees. This will mean instant billing on time, every time, ensuring a steady stream of revenue for subscription businesses and flexibility and security for customers. E-mandates will be a game changer in the fast growing subscription economy in India.
Very soon with UPI 2.0, E-mandates will get a further push in making all types of recurring payments (school fees, Uber rides, on-demand services, SIPs, telephone bills, credit card bills etc) accessible, fast and secure for everyone. E-Mandates are currently available either through the NPCI e-NACH route (that includes 45 banks) or through individual e-Mandate systems instituted by banks themselves (available with 4-5 banks). Whichever channel is used to implement e-Mandates, it will be a great step in easing the pain involved in making repeated payments. Sticking to our promise of delivering the future of payments to you, we plan to introduce e-Mandates shortly, as part of Razorpay Subscriptions.
Launched in Feb 2017, BharatQR is an easy, digital payment system that can be leveraged by online and offline merchants to quickly and securely accept digital payments, by simply scanning a code through an app. The solution was developed by NPCI and is an interoperable system supported by RuPay, Visa, MasterCard, Amex & UPI. BharatQR is based on a QR (quick response) system, requiring no investment in POS hardware or card-swipe machines.
One of the biggest advantages that BharatQR has over other QR solutions is that it is interoperable, where a customer can pay through any bank or card network to the merchant’s bank account. The transfer of money to the merchant is also immediate since it leverages the IMPS payment infrastructure – this is what makes BharatQR impactful. Adoption of BharatQR will enable small businesses, especially in tier 2 and tier 3 cities to adopt digital payments easily. At Razorpay, we have partnered with Visa, Mastercard and are BharatQR ready. And, we look forward to launching BharatQR solutions for businesses to leverage in the the near future.
UPI has grown 400X in volume in the last one year , proving to be a huge success in terms of consumer adoption. Several entities like banks and fintech players have built their own versions of UPI solutions, contributing to this massive growth. With UPI 2.0 scheduled to release soon, the digital payments space should see more disruption. UPI 2.0 will have two distinct features – biometric authentication and E-mandates, both aiming to transform the way payments are made today. Biometric authentication promises to make payments as easy as scanning a fingerprint while enhancing the security of making digital payments. E-Mandates (or UPI mandates) will take away the friction from any kind of recurring payment.
UPI mandates can be used across several areas like e-commerce sites, on-demand media, service marketplaces or just about any product or service that requires recurring payments (both scheduled and immediate). Recently, the IT Ministry instructed banks to upgrade their versions of the UPI app in order to include BharatQR requirements as well. This will now create a single point to process both UPI and BharatQR transactions, providing a complete payment experience to customers.
Aadhaar Payment Solutions
India’s national identity project Aadhaar, can be valuable to our financial system and can be used in multiple ways in order to bring about financial inclusion, simplify the way we transact. UIDAI in collaboration with NPCI and RBI has rolled out 3 major payment solutions supported through Aadhaar – AEPS (Aadhaar enabled payment system – a banking and payment solution through a network of micro ATMs), Aadhaar Pay App (an app that enables payments through biometric scanning) and Aadhaar Payment Bridge (a centralized system leveraging Aadhaar for transferring welfare benefits).
Built on principles of ease of use and lowering operational costs for money movement, Aadhaar is the nation’s biggest project to bring about financial inclusion. With 1.19 Billion people registered, Aadhaar provides a solid base to scale financial solutions. Now, with the linking of bank accounts with Aadhaar credentials, India’s banking system is definitely on the road to building a sound, and transparent financial infrastructure.
P2P (peer-to-peer) lending, a service that provides a platform that connects lenders with borrowers will now be treated as NBFCs (non-banking financial institutions), as per RBI guidelines issued in September this year. This makes all P2P lending players recognised in the eyes of banking regulators and provides them access to valid credit records from credit bureaus, ensuring better decision making. With about 30 players, the P2P lending market in India is still in its early growth phase and is estimated to grow to become a $4-$5 billion market by 2023. P2P platforms are fast gaining popularity due to their efficiency, high ROI and low lending rates. And, the new set of regulations by the RBI will only bring about more legality and credibility to P2P platforms, making it more sustainable and robust in the long run.
Since demonetization, prepaid digital wallets have seen significant growth. Mobile wallet transactions in India are expected to grow at a CAGR of 154% between 2016 and 2022. And, in order to boost this growth, the RBI in October this year announced that digital wallets be made interoperable, building a seamless ecosystem and making wallet payments simpler and easier for both businesses and customers. This however comes with more stringent KYC (Know Your Customer) norms that wallet businesses need to comply with. This move will also mean tighter competition among wallet operators in order to attract and retain customers. It will surely be interesting to see how this shift towards convergence plays out for wallet businesses in the coming year.
India is definitely on the road to building a sound, digitally enabled financial ecosystem. Important aspects to keep in mind however are data security and privacy. While data can be powerful in providing customer insights for curated experiences, it also runs the risk of exposing sensitive customer and business information. Fintech solutions must ensure strong security frameworks in order to drive adoption and engagement.
As we move forward, digital solutions will further define the fintech market in India. Areas like Blockchain technology (with application areas like digital currency exchange, cross-border payments, money transfers, smart contracts etc), Artificial Intelligence and Machine Learning (that can have a huge impact on banking systems with solutions like chatbots, voice-based payments, branchless banking and advanced fraud detection mechanisms) are still in the nascent stages of application in India, but will surely disrupt the financial ecosystem in the near future.