The transformation precipitated by digital solutions in the payment industry has been nothing short of phenomenal. The shift in the financial services space has been seismic as financial institutions (FIs) that traditionally enabled the payments economy are no longer required to carry out financial transactions. The digital transformation in the payment ecosystem is being brought about by fintechs riding high on the trifecta of innovative technology, supportive regulation, and customer demand, writes RAVI B GOYAL.
Technological innovation is transforming the digital payment ecosystem by increasing peer-to-peer (P2P) as well as person-to-merchant (P2M) payments. Supportive regulatory norms, the Reserve Bank of India’s (RBI’s) regulatory sandbox along with the expanding open banking ecosystem have created an environment conducive to innovation in the payment and other financial services space. Completing this trifecta is the increasing demand from consumers for personalised, seamless, and transparent transaction experiences that can be achieved with absolute comfort and efficiency.
The COVID-19 pandemic has accelerated this shift further, which is evident from the rising digital payments globally, and in India. According to a report by globally a leading financial technology provider, India reported 25.5 billion real-time payments transactions ahead of China’s 15.7 bn transactions in 2020. The report further noted that transaction volume share in India stood at 15.6 per cent and 22.9 per cent for instant payments and other electronic payments, respectively while paper-based payments had a considerable share of 61.4 per cent.
Building an inclusive ecosyste
Inarguably, the innovation in the payment industry has been, in part, led by consumers. With the availability of economical smartphones, cost-effective data plans, and the ease offered by digital interface, consumers have been migrating to digital experiences for many of their requirements. With the United Payments Interface (UPI) and the Indian Stack, India paved the way for fintech innovation. Today, consumers can make peer-to-peer transactions and pay for purchases through their preferred payment application.
The ultimate benefit of this innovation is accrued to the end-consumer who can now transact in a safe and secure manner just with the click of the button. As payments form an integral part of every business, its digitisation has acted as a growth catalyst not just for the banking industry but also for petroleum, retail, and mobility sectors. For example, consumers can now park their funds in an e-wallet and then use it to make subsequent purchases.
Another important aspect that needs to be underscored is how digital transformation in the payments industry has enabled financial inclusion. Due to the ubiquity and ease of digital transactions, individuals residing in rural, or tier 2/3 cities are increasingly becoming ‘payment literate’ and are able to accrue the many benefits of digital payments.
Enabling technologies
Inevitably, technology plays a catalytic role in the digital transformation of the payments industry. Enterprises across industries are embracing innovative digital tools in an attempt to better understand customers and offer them a seamless and safe payments experience. Some of the leading digital solutions include:
Application and Programming Interface: API an acronym for Application Programming Interface allows two disparate applications to talk to each other by acting as software intermediary. This allows different payment apps to interact with each other for providing the customer with a seamless experience. Further, the simple plug-and-play model also enables enterprises to reduce costs and transact in a safe environment.
Data analytics and Machine Learning (ML): Due to our growing digital footprint, enterprises can gain consented access to reams of data. This data is further analysed to gain insights into consumer behaviour and then leveraged to build customised and enhanced service solutions.
Cloud: Today, businesses need to be agile and proactively meet the changing demands of the customer. By leveraging cloud technology, enterprises can improve flexibility, limit infrastructure costs, and enhance service offerings.
Digital Ledger Technology: Blockchain technology, a type of DLT, can enable faster processing, easier reconciliation, and greater transparency on fees. It can potentially elevate the entire payments ecosystem and bring about significant change in international and cross-border payments.
The ongoing digital transformation has also encouraged regulators, innovators, and providers to focus on cyber and data security. It is imperative that innovation in the payments space goes hand-in-hand with security and necessary initiatives are taken to safeguard consumer data and interest. The digital backbone of the world’s second-most-populous country and largest democracy has continued to develop and create a fertile environment for innovation. The growth in the digital payments industry is indicative of the widespread impact of such innovations.
