India on track as the next big digital payment market

The Indian market is growing more attractive by the day: that’s what the fintech numbers show. The digital payment scene in India is dynamic and exciting for technology enthusiasts, as new channels pave fresh avenues for smart solutions, creating opportunities and carving out room for growth.

Over the last few years, India has witnessed impressive growth in its financial inclusion rate. According to the World Economic Forum, in 2011 40% of adult Indians had a bank account; seven years later in 2018, almost 80% of adult Indians had one. However, the bulk of this inclusion has taken place in urban centers, with a great deal of the rural areas starting to access financial services at a slower rate.

In 2016, the launch of the United Payments Interface, UPI, by India’s NPCI (National Payments Corporation of India) became a game-changer in the digital payment space. The UPI allowed account-based payments to become widespread, prompting a move away from traditional cards and wallets towards more sophisticated methods.

One the greatest benefits is that the UPI has an open architecture that has allowed different players to enter the market, such as the giants Google and Facebook but also local services like PhonePe, which was later acquired by Walmart.

The Indian P2P payments market is without a doubt among the most exciting and fastest-growing globally, poised to increase at an impressive overall average annual growth rate of over 72%, expected to reach US$159.2bn in 2022, according to the 2019 Statista Fintech Report.

The growth is spurred as more people in rural areas gain access to easy and affordable financial services via their smartphones. A study by BCG reports that the next 1 billion users for digital services will be from Asia, with India leading the pack.

India will see the fastest growth in digital payment transaction value between 2019 and 2023, with predictions that digital payments will more than double by 2023.

Despite having one the most tech-savvy populations in the world, mobile payments are not so much of a reality in India yet. According to Business Insider, only 14% of Indian consumers make mobile payments on a weekly basis, which highlights the large scope of opportunity and growth in one of the largest countries in the world.

Even though the US and Europe tended to be pioneers in the development of new technologies, the Asia-Pacific region is already the leader in use of mobile payment services: mainly thanks to China, which is by far the largest Alternative Finance market globally. With the projected growth in India, the region could take an even bigger leap in the area.

US and China fight for leading position in India

Eyeing the massive opportunity in India with a market yet to mature, Chinese and American investors are moving quickly to conquer customers in this market. “Everyone is coming to that market, and trying to see if they become big,” said Neha Singh, co-founder of data provider Tracxn, to the FT.

The battle between the two biggest economies in the world over the Indian market is indeed a weighty one: India has double the number of mobile users than in the United States — a figure which keeps growing, as about half of the country’s population is below the age of 25.

At the moment, there is strong evidence of Chinese efforts to dominate the market and tap into the opportunities. Tracxn revealed that last year, Chinese investors injected $3.5bn into the Indian technology sector, as well as taking part in nearly twice as many funding rounds than in 2017.

However, the American big tech names are not giving up without a fight. As announced in July, Facebook’s WhatsApp is gearing up to enter the market with a bang later this year — the app is very popular in India, where it has around 400 million users. The market leader Paytm with 350 million users, which is backed by Alibaba, could expect its position to be challenged by tough competition coming from WhatsApp.

“Indians love WhatsApp, and will love the convenience of transacting through the app. I foresee a trend wherein entrepreneurs and small and medium enterprises start embracing and using WhatsApp Pay,” Prabhu Ram, Head, Industry Intelligence Group (IIG), CMR, told IANS.

On the emergence of WhatsApp pay services, Paytm Founder and CEO Vijay Shekhar Sharma tweeted: “After failing to win war against India’s open internet with cheap tricks of free basics, Facebook is again in play,” Sharma had tweeted.

Nevertheless, there are doubts over whether Indians will trust WhatsApp as a payment system, given Facebook’s long-lasting history with user data misuse.

The Indian government and the Reserve Bank of India (RBI) welcome private and international ventures that contribute to the growth of the tech sector. The Digital India strategy is a national flagship programme aiming to transform India into a ‘digitally empowered society and knowledge economy’ by boosting the country’s digital capacities.

Ravi Shankar Prasad, India’s Information Technology Minister, said during the 2018 G20 meeting in Argentina: “India’s digital story is a story of hope and growth, of opportunities and profits. But above all it is a story of digital inclusion and empowerment. Digital India is a mass movement today touching the lives of a billion people.”

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