Presentation By: Pradeep Kharvi

India’s Emerging Payments

MarketFrom Cash to Tap…

Table of Contents• India’s Economic Progress• Payments - A Rapidly Emerging Industry• Mobile Payments in India• Payments Bank in India• Rise of Mobile Wallet in India• Evolving Payments Ecosystem• Conclusion - Payment Industry to Witness Multifold Growth

India’s economic progress / Financial Inclusion• During last 10 years, enhanced job creation and household income

have lead more consumers to use financial services• Increased per capita disposable income, Changing lifestyles &

Growing popularity of online shopping• Central Bank initiative to increase financial inclusion (Pradhan Mantri

Jan-Dhan Yojana) and expand banking operations to this unbanked population

…have supported the growth of the payments industry

Payments - A rapidly emerging industry• With total payments approaching $9 trillion,

India’s payments industry has revenues of nearly $14 billion• Payment flows are 7.8 times GDP

[Comparable to many Western countries and emerging economies, such as Brazil (7.3), Italy (7.2) and the U.S. (7.0)]• Payments contributes about 30 percent of bank revenues• Meanwhile, electronic payments have grown significantly• The mobile payments (m-payments) industry in India is

estimated to grow from $86 million in 2011 to $1.15 billion in 2016, with a compound annual growth rate (CAGR) of 68%

Source: McKinsey on Payments

Banking and Payments Customer Landscape

Cash Payments• Cash continues to be the most popular payment instrument for the

majority of Indians, primarily due to a limited public awareness of other payment instruments, or little to no access to banking infrastructure, particularly in rural areas. • Cash is primarily used to make small-value

payments to retailers, for the payment of utility bills, taxes and transport fares. • Among the rural population, cash is the

dominant form of payment.

From Cash to Card• Low banking penetration levels suggest growth opportunities for banks, financial

institutions and card issuers in India. As a result, banks have introduced a number of cards targeted at the unbanked population.• Consumer acceptance of payment cards gradually increased during last 10 years,

as the government and banks have begun to provide basic financial access to the unbanked population. • This includes the expansion of infrastructure such as ATMs, the appointment of

banking correspondents (BCs), the launch of new branches, in addition to specific efforts to change India’s consumer payment habits.

Payment Gateways in India• Although financial transactions in India are primarily paper-driven, electronic payments have witnessed

noticeable growth in the last five years.• Consumers are increasingly using credit cards, debit cards and net banking for online purchases.• Payment gateways serve as the starting point for all online payments and are responsible for processing

online transactions in secure & confidential manner.• Robust growth in e- commerce segment has led to corresponding growth in Payments gateway market in

India. The market is expected to grow at a CAGR of 61% and reach $ 40B by 2016.• Payment gateway market in India is currently driven by a handful of players with banks such as ICICI, HDFC ,

Citibank, SBI having majority of the market share.• Third-party vendors include players such as CC Avenue, BillDesk and ECS.• In the past one year, international players such as Ogone and

Naspers have entered the market with domestic players such as Paytm payments, Flipkart, Gharpay, Juspay & Zaakpay.

Burgeoning Mobile Market• India is experiencing tremendous growth in the use of Internet as well as Mobile• There are a just under a billion cell phone connections in India• India adds around 6 million new cell phones every month in usage• Although the number of Internet users

low in comparison - around 200 million users• The conversion of cell phone users to

mobile users is fast growing• As per telecom industry estimates,

65% of all new Internet users in India experience their first Internet surfing activity via mobile

Regulatory Support• RBI set guidelines for prepaid payment systems in India, aligning

with the Payment and Settlement System Act 2007• M-payments market is witnessing favorable regulatory environment

in India with RBI relaxing norms on m-payment transactions and allowing institutions other than banks to provide m-wallet services• Creation of National Payments Corporation of India (NPCI) as a nodal

infrastructure agency for small payments and real time payments using Immediate Payment Service (IMPS)

Mobile payment demand, business models, services and regulatory environments

Source: EY, Mobile Payment Forecast

Mobile Payments in India• With 980 mn mobile subscribers growing at 14% y-o-y &

nearly 41% unbanked population in India, M-payments has huge potential in India.

• Availability of affordable handsets, low mobile tariffs and increasing voice & data network coverage across the country will emerge as key drivers for m-payments in India.

• Lack of adequate banking infrastructure, low internet and PC penetration are expected to provide further impetus to growth of M-payments market.

• The market is estimated to grow from $86 mn in 2011 to $1.15 bn in 2016 at a CAGR of 68%.

Source: Study by Knowledgefaber

Source: Capgemini - The Future of Indian Digital Wallets

The total value of transactions through digital payment

instruments stood at Rs 21,300 crore in the 2014-15 fiscal

grown 15 X

Adoption of Mobile Payment Services

Source: EY, Mobile Payment Forecast

Highest levels of uptake are in India

Payments Bank in India• Banking for the unbanked – Payments Bank• Currently, most Indians are unbanked and participation

from private parties can boost the financial inclusion on ground level• The payments bank licensing will help make inroads in

rural areas and play a bigger role in overall financial inclusion campaign• The move will immensely help lower income groups

who do not have access to formal banking systems. E.g., if your maid, driver, gardener opens an account with the payment bank, you will be able to pay their salary electronically

Payments Methods

CARD PAYMENTS ALTERNATIVE PAYMENTS DIGITAL WALLET PAYMENTS• The shopper

purchases goods or services using their Credit Cards, Debit Cards, Prepaid Cards & Gift|Loyalty Card

• E.g. MasterCard, Visa, RuPay, etc.

• Alternative Payments Methods do not rely on cards

• E.g. Online Bank Transfers, Direct Debits, Mobile Carrier Billings

• Digital Wallets allow shoppers to link credit cards or other alternative payment methods to a virtual wallet.

• E.g. Paytm Wallet, Pockets, etc.

Low Penetration of mobile in proximity payments• Penetration of mobile in proximity payments is currently negligible (less than 2%)• Issue: lack of necessary infrastructure for mobile payment acceptance• Total number of POS terminals in India is less than 700,000 which equates to

5.4% penetration• Retailers have little capability and incentive to

acquire POS terminals• Lack of readiness of various players to interoperate

in order to adopt the technology at scale• Mobile payment service providers and banks need

to work together to create a seamless ecosystem for the technology to work efficiently

Rise of Mobile Wallet in India• Digital wallets have already become extremely popular with consumers• Mobile wallet market in India is projected to surge due to

• Rising penetration rate of mobile devices, • Increased mobile Internet user base and • Growing government support • mobile wallet companies offering attractive deals

• Usage of mobile wallet such as • Money or banking transactions, • Mobile recharge and bill payments, • Ticket bookings, • Utility applications, etc.

• Approval of payment bank licenses of major companies, such as Paytm, Vodafone, Airtel, etc., is projected to drive growth in the number of banking transactions through mobile wallet over the next six years

US$ 200 Million

US$ 11.5 Billion2022

2016

Expected Growth inMobile Wallet Market

Evolving Payments Ecosystem

Consumer

Access

Convenience

Security

Affordability

Choice

Flexibility

Speed of Delivery

Ease of use

Payments banks expected to ensure availability of electronic payment point at 15 minute walking distance

Easy to use application interface, availability of content in vernacular languages will improve customer experience

E-commerce like speed in delivery of financial services, mobile as chosen channel for delivery

Unique needs of customers will be met as technology enables flexibility and customization of products at efficient cost

Combination of mass market and niche bank and non-bank players providing ample choice to consumers

New bank licenses and well funded fintechs will ensure price wars, at least in the short run

Front and back end authentication and firewall measures to enable increase in customer trust

Easy documentation, quick and hassle free KYC processes will incentivize utilization of financial services

Evolving Payments Ecosystem to address Customer Pain Points

Conclusion - Payment industry to witness multifold growth• India, the “elephant ready to dance”, is bubbling with economic activities across the spectrum of

the society• This industry has been growing steadily over the past few years. Card transactions, both by debit

and credit cards, are on an upward trajectory• The rapid growth of smartphones, Internet penetration and e-commerce is complementing

these;• The payment industry in India is expected to witness

multifold growth in the next few years with the entry of payments banks and small finance banks and several payment modes like mobile wallets and prepaid cash cards

• The future holds exciting times for the payments industry in India, as all stakeholders and regulatory authorities come together to achieve a “less-cash dependent” and eventually “cashless” society

References• McKinsey on Payments – A strategic review of India’s emerging payments market

• McKinsey on Payments - 16 in 2016: Trailblazing trends in global payments

• PWC - Disrupting cash : Accelerating electronic payments in India

• EY - Mobile money : the next wave of growth

• TOI Article - Mobile wallets: All you need to know

• Business Standard Artic - On the fast track from bricks to clicks

• letstalkpayments.com - Payment Market in India

• India Today Article - Banking for the unbanked

• The Cards and Payments Industry in India Emerging Trends and Opportunities to 2019

• CapGemini - The Future of Indian Digital Wallets