The global financial crisis of 2020 has accelerated the growth of cashless transactions through digital payments
To understand just how rapidly this segment is evolving and adapting, let us look at some of the trends which are rewriting the future of digital payment systems in India.
Newer Ways To Bank, And The Emergence Of Neo Banking
As more customers consciously choose online banking over physical transactions, banking institutions are rewriting the customer playbook, with emphasis on pricing, transparency, customer convenience and service. These trends have given rise to a new cohort of FinTech players - Neo Banking service providers. By leveraging state-of-art-technologies, these Neo banks offer digital banking through mobile applications making it cost and time efficient, as customers are able to leverage a single network to access an entire financial portfolio. Unlike a digital bank, which is an online subsidiary of a banking company, a neo bank, which is essentially a FinTech company, is purely an online entity that works either independently or in partnership with a bank. Neo banks also offer intuitive and advanced interfaces for customers who seek to fulfil and understand their banking transactions.
With FinTechs ushering in the era of neo banking and with some operational tasks such as KYC and customer services increasingly pushing the envelope on digital interactions, it is a matter of time before some of the large banks also wake up to these trends and build towards their captive offerings which can compete with or enable these fintechs better.
Old Spending Mechanisms Making Way For The New
The global pandemic witnessed a groundswell of convenient, alternative trends in the payment industry, such as e-wallets and contactless payments in real time. Both e-wallets as well as credit cards are expected to become the preferred mode of payment in the future for online and in-person transactions, overshadowing cash payments. In 2021, QR-code, TapandPay and other forms of digitally enabled payments are expected to grow given the progress made by a lot of payment aggregators and gateways in how these transactions can be better enabled.
The ‘Tap to Phone’ technology that runs on NFC (e.g PineLabs ALLTAP) will allow micro and small businesses to enter the digital economy with just an app that can accept contactless payments without having to invest in an acceptance terminal. This makes distribution less of a constraint in the acquiring business and is expected to further encourage mobile commerce. While UPI has become a staple through multiple large players and their penetration efforts, this technology further paves the way for Credit Card acceptance at a much larger scale than hitherto thought possible.
The speed at which technology is facilitating this transition will call for regulators to look into the aspects of privacy, security, licensing and tech sandboxes, and 2021 will see several developments on these fronts with some discussions already happening on robustness of the underlying bank infrastructure as well as around the Payment Aggregators and Gateways and around how cardholder details are managed within the ecosystem.
Brand Differentiation To Play A Key Role In Building Consumer Relationships
While product differentiation can provide uniqueness, it may be short-lived – until competition catches up on the game. The defining differentiator would be a brand’s long-term strategy aimed at creating enhanced customer journeys, filled with memorable experiences. For this reason, reward programmes that go beyond just convenience and are thoughtful, refined and customized, offer a world of opportunities for marketers to carve a niche for themselves. Co-brand programmes between banking institutions and loyalty programmes as a strategy will thrive in 2021, offering consumers enhanced, multiple opportunities to earn rewards with every spend while benefiting from some of the tech-evolutions to become more embedded in cardholders’ lifestyle and payment habits.
Staying Informed And Agile, Armed With Technology
The payments industry is undergoing a paradigm shift with technology playing the lead role in meeting evolving consumer demands and expectations. The technology that was, until recently, considered to be an added benefit is now a bare necessity of daily financial transactions. This is further accentuated given an extremely volatile eco-system fuelled by the pandemic, its impact on the overall economy and the global political environment affecting consumer behaviour and affordability. Businesses and regulators will need to be alert and agile in order to spot imminent changes and understand their implications on business models, privacy, security and consumer sentiment.
The author is Senior Vice President, InterMiles.
DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.