Pratik Gandhi, Co-Founder of payments unicorn Nium which doubled its valuation to $2 billion in Feb 2022, talks about the future of payments – with a focus on India.
The new world values the ability to essentially do things from anywhere, anytime; especially payments. In this context the opportunity that India presents, practically in every aspect of consumer business, is huge.
Let’s take a look at five big trends that will change the way India pays and gets paid, in 2022.
1. BNPLs will evolve into credit brokers
As far as fintech credit goes, India is quite unique- because culturally, Indians have been reticent when it comes to borrowing. Numbers support this: as per data from the World Bank, India’s domestic credit to GDP ratio was a meager 56% in 2020 (higher than it has ever been). Compare this to some of the developed countries like the US (216%); Hong Kong (237%), Singapore (132%) and even China (182%). The potential is massive. Credit, on its own, is not bad. It can fuel any economy. And this is one of the big things I see changing in India- because the new generation is willing to try things out- innovative products, cryptocurrency and even entrepreneurial ideas on a global canvas. For instance, The Buy Now Pay Later (BNPL) models, which have taken off all over the world, are also doing well in India because they are targeting the younger generation, who are willing to experiment with credit.
However, since this credit is unsecured, I would like to share a word of caution against the following:
a. A race to distribute VC money as credit without adequate due diligence;
b. A competition to give money to the same set of borrowers, promoting the notion of ‘easy credit’; and
c. Lending to a generation not well versed with the consequences of easy credit can create problems
For e.g., if credit defaults are not reported to a central system like a credit bureau, the system will not be able to capture defaults/non-payment, and this can be harmful for the economy. I visualise significant growth for this segment, as long as there is some regulation. For instance, a check on the NPL ratios, capital adequacy ratios and reporting defaults to the rating agency. I’m very keen to see responsible growth and basic checks and balances in the BNPL system. Incidentally, India is not new to this - players such as Bajaj and Citi have been doing this for a long time.
2. SMEs will drive the creation of infrastructure for frictionless global payments
SMEs will drive the transformation of global payments. In order to streamline payment processes, reduce operational overheads and stay competitive, SMEs will drive the creation of smoother remittance platforms – e.g., to do something as basic as send and receive payments across borders in real time. Remember that SMEs comprise 90% of global businesses and account for 50% of global employment.
Typically, SME transaction volumes have been too low for large business payment platforms. However, they have gone through a tough time during the pandemic and want to insulate themselves as far as possible from such black swan events. Hence, as borders and trade reopen globally, they will want to explore newer markets.
Players like Nium are already facilitating this, though there are some restrictions in India for us to offer all these services as of now.
3. Travel industry will accelerate payment innovation
Global travel will soon be back. In fact, FY 22/23 will see massive growth in this segment. I can speak for this personally because over the last 2 months I have been traveling for over 45 days.
India, which still has a large percentage of cash usage, is likely to lead travel innovation thanks to our youth-heavy population and rising levels of disposable income. Hence, ‘travel cards’ will make a big play for Indian users. They will become part of an electronic wallet – and can be used like any other Visa or MasterCard- but with multiple currencies built into them, so that there is no risk of carrying cash nor the high cost of currency conversion associated with cash. Nium has been obsessed with innovation that makes travel easier.
In fact, in the international markets we have launched a product under our consumer arm, Instarem, called the Amaze card, which is one step ahead of a prepaid card. It is linked to the user’s existing credit card; for e.g., if you use a normal bank credit card abroad, you may end up paying an FX cost of 3-4% on a foreign transaction. However, the same card, when linked to the amaze card at the backend, can offer you an FX as low as 30 to 40 basis points (0.30-0.40%), because the FX is being done by Nium. This has been exceptionally well received in APAC and currently under discussion for India. The other area for innovation is embedded finance in almost any sector. For example, in retail if an entity like a Shoppers Stop decides to issue cards to their customer base, we can provide a prepaid card through which their customers can not only buy from their own outlets but also make other payments - such as utility bills etc. What's significant is that the refund process becomes extremely easy as the credit for the refund goes directly to the wallet rather than going back to the bank in case of a credit card.
4. Crypto acquisition of fintechs will put them ahead of competition.
Cryptocurrency continues to be a highly polarising subject. Central banks of various countries - for e.g., China, India etc.; (especially those that are big receivers), are not convinced about it yet. From India's point of view, the RBI is evaluating this. Having said that, market forces are creating additional pressure. Two key reasons could be that:
a. Cryptocurrency is often confused with blockchain technology – while the latter has many use cases, the former has had several issues associated to them, mostly due to anonymity and speculation. It is entirely possible that over time, governments and central banks become more open to this technology, and its use cases.
b. Abstract forms of money are here to stay - chiefly because it cuts out middlemen and is tough to hack. In the long term, Governments will find a way to benefit from this as well as regulate it. And this is probably for the best for all those involved. Despite all this, since crypto companies are generally looked at with suspicion by many regulators, their acquisition of fintechs – who have the real use cases and licenses in many cases - is likely to give them real substance.
5. Hundreds of small fintechs will be swallowed by bigger players
The trend to use the fintech ecosystem as a supermarket did not slow down during the pandemic. American Express’s accession of ‘Kabbage’ is a case in point. Worldwide, 56% of fintech acquisitions were made by trade and financial institutions in 2021.
Currently, the fintech landscape is oversaturated with undifferentiated players because you cannot stop two different sets of people from hitting upon the same insight-that solves the same problem- in completely different parts of the world. The tough part is that to win the attention of a big investor- you must be truly differentiated. If you aren’t, you're better off merging with a market leader.
This, in turn, will help: fill gaps in their own tech stacks;expand their product set; and have a window to newer customers. Consolidation is a natural progression for every industry. To conclude, let me reference the book 2030: How Today's Biggest Trends Will Collide and Reshape the Future of Everything by Mauro F. Guillén. He points out that the nation of Estonia now presents itself as an e-republic. Tell me, is that not a sign of things to come?
Profile of Pratik Gandhi: Pratik Gandhi's 25-year old corporate career includes stints with blue chip firms like Arthur Andersen, Xerox, PepsiCo and Telstra. His trajectory took a different turn after he specialised in banking. Thereafter, he served as CFO at Fullerton India Credit (a subsidiary of Singapore’s Temasek Holdings), CFO and Head of Portfolio Management at Standard Chartered Bank Singapore and Regional Chief Finance Officer for Consumer Finance Business at Citibank.Pratik became part of payments unicorn NIUM in 2016 and has the title co-founder.