By TR Ramachandran, Group Country Manager, India & South Asia, VISA
This year has been like no other for digital payments. Even as economies came to a standstill, consumers pivoted to online shopping and businesses turned to remote delivery and digital acceptance. The pandemic-fueled adoption of all things digital uncovered distinct possibilities in consumer and business behaviour. Interestingly, consumers formed brand new habits – using digital technology for work, working from home, and ordering online en masse. Some of the trends we witnessed this year will continue into the new year while others will take form. Here is a look at six such trends that we believe will shape the future of digital payments in India in 2021.
Mainstream emergence of integrated commerce
Digital took centerstage this year with many offline and neighborhood stores closing in early 2020 and some pivoting to accepting digital payments and delivering remotely. As the nation’s economy opened slowly mid-year, businesses started implementing new methods of delivery such as buying online, curbside pickup etc. A noticeable cohort of first-time e-commerce shoppers emerged from tier II & III cities – expected to grow to 170 million in 2023 from just 50 million in 2018. Consumer buying patterns and preferences also changed significantly with shoppers depending more and more on stores that have an online presence.
2021 will see further evolution in this behavior; especially with online groceries in India alone expected to cross $3 billion by the year end . When mapped against the large offline merchant base across the country, integrated commerce will not remain a fad but become commonplace for all of us. Consequently, new-age distribution channels and market aggregators will insert themselves into the value chain as well. To provide seamless shopping experiences in this rapidly changing environment, businesses will become nimbler by focusing on technological advancements for app-centered buyers and a multi-channel commerce strategy for consumers shopping online, in-app and in stores. Omni channel commerce will come of age in 2021.
Rise of pay later
Of the 900 million banking services users in India, less than 4% are unique credit cardholders – indicating the vast opportunity in consumer credit. The acceleration to digital-first experiences this year changed consumer expectations on how they pay and when they pay.In the aftermath of the shutdown, when personal consumption and discretionary expenditure plummeted, affordability has become a central theme with most sellers. In turn, this has led to businesses and consumers welcoming Buy Now Pay Later (BNPL) options in digital payments, injecting speed, flexibility and convenience in paying. The coming year will witness the explosion of mass affordability solutions primarily triggered by theflexibility and benefits of BNPL options, which are expected to further trigger growth among both merchants and consumers without having to break the bank.Expect the next gen in BNPL to be offered by merchants, manufacturers, marketplaces and, of course, Banks and Fintechs.
Contactless future
This year, in more ways than one, was about ‘contactless’. We saw an accelerated usage of contactless cards due to safety concerns and to reduce contact, leading toan uptick in contactless payments in high footfall segments like grocery and pharmacy.
Besides the safety, speed and convenience offered by contactless payments, the RBI’s new guidelines of increasing contactless payment limits to INR 5,000 is opportune, as it expands the category of purchases which can be made by tap and pay mode. Sectors such as QSR, dining, fuel,supermarkets, pharmacies, are likely to witness a spike as people opt to pay via contactless for transactions up to Rs. 5,000.Expect brand new categories to go contactless – Transit and Tolls is a frontrunner.
MSMEs to embrace digitization
In 2020 MSMEs increasingly adopted digitization as the year drastically altered the way businesses operate, whether to source materials, pay employees or accept payments from customers.A recent report estimates that the total digital opportunity offered by MSMEs will grow from around $30 billion in 2019 to $85 billion in 2024. In 2021, small business owners will continue to look for ways to branch out and stay connected to consumers as well as leverage digital marketplaces to survive and thrive. Not only will they gain exposure to new consumer segments, but will also help them secure new leads, provide 24/7 access to their products and create new experiences for digital-first customers. Increased digital MSME footprint in turn will open the gates to MSME Credit getting mainstream in 2021.
The mobile phone as an Acceptance Device
This year,a number of ‘offline’ merchants especially in unorganized retail embraced digitization and will reap its benefits over the coming years.Further aided by smartphone ubiquity, contactless payments, whether QR or NFC led, is set to become the default payment experience at point of sale in 2021.
On NFC, the advent of ‘Tap to Phone’ will enable micro and small businesses to enter the digital economy with just an app on their existing smartphones, so merchants can accept contactless payments without investing in an acceptance terminal. As India’s current 160 million unique mobile payment users multiply five times to reach nearly 800 million by 2025, contactless payments via physical cards and those embedded on devices will lead the charge. 2021 is expected to be pivotal for contactless payments growth as usage accelerates amongst both consumers and merchants and Tap to Phone could be the catalyst to drive this change. Expect a flurry of Fintech and Payment Facilitators entering the arena riding off this, in 2021.
No compromise on security
According to World Economic Forum’s Global Risks Report 2020, cyberattacks to garner data/money ranks amongst the top risks that businesses are likely to face in the year ahead.As businesses and consumers adopt digital payments for myriad needs, fraudsters too are getting smarter, hence putting payment security back in the spotlight. In 2021, it will be crucial to consider checkout experiences and fraud activities, particularly with Card Not Present transactions, from the lens of payment security. Given the shift to online-first offerings, investments in cybersecurity and authentication will take precedence, especially for small businesses as they are not as equipped to handle large-scale fraud vis-à-vis big firms. Redoubling business commitment to security will be a catalyst for innovation in payment security of the economy.
For our nascent digital payments journey to mature in 2021, a continued focus on Risk and Cybersecurity to protect consumers and keep fraudsters at bay is an area all of us in the payments industry have to be vigilant about, and in 2021, this will assume even more criticality .