The Indian Financial Services space over the last couple of years has been transforming itself constantly and is on the path to significant growth. With the arrival of various next-generation technologies, the Indian FinTech sector has been embracing technology and innovation with open arms. This backed by various regulatory amendments including eKYC, e-NACH, India Stack, and API integration has paved the way for a robust digital payment and interoperability system.
It is well known that the Indian FinTech space is governed by multiple entities including the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Telecom Regulatory Authority of India (TRAI) and others, and it is these regulatory bodies that have taken the onus to advocate for increasing the digital transactions in India. As digital transactions continue to rise, let us look at some factors that would enable this growth in India.
Unified Payments Interface (UPI)
2017 and early 2018 witnessed a wave of UPI – a system that allows users to link multiple bank accounts in a single smartphone app (like BHIM or Google Pay) and initiate transactions without having to provide numerous clumsy and time-consuming methods like providing IFSC codes, and account details to initiate every transaction. By 2019, the recently launched UPI 2.0 – the updated version of UPI – will increase UPI-based transactions significantly.
In fact, in December 2018 alone, over 600 million UPI transactions worth INR One Lakh Crore were conducted as compared to the close to 525 million transactions valued at approx. INR Eighty Two Thousand Crore transaction conducted in November 2018 – constituting to an 18 percent rise in the volume of transactions as stated by the National Payments Corporation of India (NPCI). Backed by numerous global players like Amazon, Google, Paytm and WhatsApp who have invested heavily in UPI-based platforms, the digital payments space in India is likely to grow manifold to the tune of USD 1 trillion by the year 2023.
Simplification of Payment Gateways
With innovation and simplification on most banks’ strategic roadmap, it is natural that digital payments and transactions would be a top priority. The ease of governance, current regulatory policies, the NPCI’s work, the Digital India Programme, and the Jan Dan Yojana over the last few years have seen some positive impacts. It is estimated by industry studies that the majority of card-based transactions on the Indian subcontinent have nearly doubled in the two years since demonetization. Additionally, it is estimated that the cards industry has witnessed a remarkable Y-o-Y growth of over 100 percent in card transactions in the year 2018 alone.
Thanks to these factors, tremendous opportunities are available today to different FinTech solution providers to innovate payment interfaces like cards, e-wallets and other digital payments infrastructure. Furthermore, the penetration of the homegrown RuPay payment network, the availability of low-cost data from telecom service providers, and the advent of futuristic solutions will be the definitive enablers for innovation and simplification in the payment gateway sphere in India.
The transformation of the Indian FinTech industry is a fast-paced one, and the success and growth seen in digital transactions make it is absolutely imperative for all the stakeholders involved to pay close attention to a comprehensive cybersecurity strategy and framework. As the adoption of digital technologies and processes by the BFSI sector rises, it is but natural that the cyber threat landscape also magnifies. As India is classified as an ‘Aspirant’ in the Cybersecurity Capability Assessment, there are numerous efforts and initiatives undertaken by the collaboration of the government, industry and academia to create appropriate policies, regulations and enable its enforcement to scale up to a global cybersecurity standard.
Today, the challenge of maintaining a fine balance between providing a seamless experience and the necessity to diminish fraud is enabling various entities to rethink and evaluate their cybersecurity strategy. The RBI is leading by example and the tokenization of card transactions – be it of debit, credit and prepaid – will pave the way for a paradigm shift in enhancing the security of digital payments ecosystem in India.
Remittances and Cross Border Transactions
India today is the world’s sixth-largest economy by nominal GDP – and a sizable share comes from the remittances its diaspora sends back home. The rise of mobile and the digitization of money are the two biggest opportunities that are changing the way people manage and move money. Mobile technology is helping to break down barriers, making remittances more convenient, secure and affordable. For instance, consumers can send money transfers easily and quickly with a swipe on their device. According to a World Bank report, in the year 2017 remittances globally have touched a high of USD 613 Billion. Another report from the leading international financial institution further states that Indians settled or working abroad sent home a massive USD 69 Billion in the year 2017, thus retaining its Number One position as the biggest recipient of remittances. This trend is only expected to rise in the near future.
Data Localization Policies
With the online transaction environment thriving in India, the RBI has brought in necessary regulatory steps to ensure enhanced data monitoring and localization to enable “Unrestricted Supervisory Access.” The RBI clearly states that data has to be stored in India, and the Indian Finance Ministry through multiple avenues expressed that they support mirroring of data while suggesting some relaxations for global corporations. This proposal has been accepted, and the regulations already have been adhered to by various players including companies like WhatsApp, to name one. These initiatives and the support they have received will enhance the entire digital transactions environment.
Tech-driven reforms – The way to a digital future
The Indian FinTech industry is leveraging various technologies to support digital payments, and this innovation is being supported by the government too. According to the RBI, in September 2018 alone, the Indian banking sector saw close to 670 million digital transactions worth approximately INR 40 Lakh Crore. Regulatory initiatives taken by the government like “Customer Protection – Limiting Liability” and “Tokenization” for consumer protection are much-needed enablers – providing robust support to the Indian FinTech ecosystem. This is paving the way for more tech-driven reforms and an exponential rise in digital transactions in the years to come in India.
The article is written by Faisal Husain, Co-founder and CEO, Synechron