Transformation of Payment Processing Industry
Four experts in payments processing industry speak about their views on India’s standing in the sector in an audio-visual interaction:
From the traditional use of cash to the availability of multiple digital payments options, one doesn’t necessarily need to be an expert to trace an evolving payments ecosystem. Even the cashless payment infrastructure once primarily limited to cards is today aided by multiple digital payment options. In India alone the overall digital financial transactions are predicted to grow at 18.3% (CAGR 2020-2023) to reach US$134,588 million by 2023. The rising internet penetration and the e-commerce growth forecast ensure an ever-stronger emergence of a digital payments ecosystem.
But all this number crunching or the growing popularity of e-commerce is just one part of the story. What completes the financial payments landscape story is how transforming payments processing industry is fulfilling the demands of its young smartphone led online shoppers with convenient, instant and secure payments. And because of these offerings, the use of cards and digital wallets are gaining prominence over cash. Today, BHIM, UPI, GooglePay, Paytm and the likes are no longer financial possibilities but a routine for everyday financial transactions. What’s more, this change in the payments industry is not just reliant on e-retail alone but is also making its way to areas like financial remittances and B2B transactions replacing cash.
So as India turns digital in the true sense, the payments processing industry is showing the way forward making India a true global front runner in this evolution of digital payments ecosystem.
EVOLVING PAYMENTS ECOSYSTEM
As the world strives to move towards a digital and cashless economy, payments ecosystems have a much broader and essential role in enabling such a transformation. Jeremy Wilmot, in his capacity as the Group President, ACI Worldwide, and someone who has traced the evolution of the global payments ecosystem, says “E-payment is all about taking cash out of the system. The ecosystem is moving towards a real time capability with real time payments and settlements.” Complete digitization of the cash for every stakeholder, be it a bank, merchant, corporate or a consumer, is the ultimate goal for the payments industry ecosystem development.
Echoing a similar sentiment, real time payments and their direct correlation with customer experience are important factors in the evolution of payments ecosystem, says Praveena Rai, COO at NPCI. “Real time payment has created a world of digital and instant from a consumer’s standpoint. Today consumers are able to pay anytime anywhere driven by the real beauty of API which is its simplicity,” says Praveena. This continuous removal of friction in payments underlines the inherent strength of the whole payments processing ecosystem, she adds.
Showcasing the coming together of various systems in a new single workable ecosystem, Phil Heasley, President and Global CEO of ACI, says: “We have been helping more than 24 countries to bring together cash management and digital opportunities.” ACI, he says, is helping nations join the dots to open up their foreign markets in an increased globalized world. All these are essential cogs in the global payments ecosystem. In his experience with ACI, Phil shares how the evolving ecosystem has helped nations to set up a card network side by side with other digital networks: “We have been very specific in our support of mobile as we see mobile as the dominant factor is this new ecosystem.” While as the new ecosystem evolves, ACI is also focusing its energy on existing systems including ATM business, which has evolved and become a digital workstation, says Phil on global payments.
CHALLENGES AND SOLUTIONS
Cost of digital payments systems continues to be challenges both for the governments and digital payments enterprises. Tracing the challenges and possible solutions to bring down cost of digital payments, Phil Heasley reveals how ACI is driven by the mission to ensure real time payments. “What’s inherent in our mission is that we have to be able to deliver low cost to produce such a delivery.”
“We s t r i v e t o move v e r y large transactions as very low cost per transaction. Since cash, cheque, ACH and cards are all expensive, digital transfers are both real time and pocket friendly,” he adds.
Suggesting redefining of a digital currency, he believes it is time for every
currency to take a cue from Bitcoin and have its own digital transformation.
SECURITY CHALLENGES IN AN EVOLVING PAYMENT ECOSYSTEM
Along with the costs, security remains at the forefront of the evolving payments landscape. Sharing his views on how security challenge must be tackled efficiently, Phil says: “In order for something to be trustworthy, it has to always be there.”
Making the customer, including the sender and receiver, feel comfortable is the key, he reminds, maintaining the use of tech enabler tools like using Artificial Intelligence (AI) helps build such trust and enhance the overall security.
Praveena seconds the strong emphasis on security as one of the pathways to strengthen the payments processing industry further. “Security is the key as chance of recovering from an error reduces with less friction in the ecosystem. It is therefore important to have a strong risk management framework,” she says.
The industry on its part understands the significance and is investing regularly on the technology side of security, she adds, highlighting security is the top priority.
Trust of the consumer and corporate is critical, believes Jeremy Wilmot. “Trust is hard to build but can be lost in seconds,” he says. Factors like prominent use of OTP to registered mobile phones as well as using facial recognition authentication significantly reducing risk must be a part of the financial ecosystem development strategy. As the ecosystem progresses, Jeremy foresees a more prominent use of patterns tracing a consumer’s spending patterns to watertight the system further. In terms of the future, Jeremy pins hopes on real time scoring of the transaction with the emergence of 5G networks. “Fraud levels can be kept low and in single digits further strengthening the growth of payment industry,” says he.
EVOLVING PAYMENT SYSTEMS AND GLOBAL STANDARDS
The evolution of payments processing industry has meant the need for a global standard to ensure smooth transactions. Phil Heasley shares how ACI acts neutral while enhancing its ability to connect UPI, ASEAN or Chinese Union Pay. “We don’t take sides as ACI is just like an honest broker creating connectivity,” he explains. Infrastructural upgradation facilitating real time payments
Sometimes infrastructural issues can create problems in payments, which can be attributed to rising growth in the volume of digital payments across channels. Praveena Rai is, however, of the view that the whole ecosystem is ramping up for upgradation, including smarter ways to architect technological solutions.
INDIA - THE FRONTRUNNER
India today is in a great space as a front runner in the payments space ecosystem. This massive lead opens an opportunity to become a truly world leader leading by example. Phil Heasley believes that there has been significant success in terms of volume in the Indian payments processing industry as it enters its maturity period. Phil terms the Indian market as one of the best systems in the world. The uniqueness of the Indian ecosystem, according to him, is the ‘democratization’ of the immediate payments systems, which is what makes India a standout performer in the industry.
Vijay Chug, well known industry luminary and a consultant/former CGM – RBI, echoes a similar positive sentiment on India and even urges Indian companies to take a global leap. “From back office boys, India has become a front-end people,” says he. “India, unlike any other country, has its own set of unique features, requirements and people, which made it create its own unique hybrid systems,” says Vijay. Indian innovation is need-based and unique and the presence of efficient platforms ensures more unique developments in the future. “India can definitely play a lead role and start by taking NPCI and IDRBT concepts commercially forward to other nations as a start,” says he.
On the downside, he expressed concern on the lack of efficient marketing of Indian financial tools in the global markets.
Terming the payments ecosystem in India as extremely smart, Jeremy Wilmot believes many countries can take example from India’s payments model and build up digital financial scalability. “India is very much at the forefront of modernization of payments processing industry with digitization of payments and can definitely lead the world by example,” he stresses.
INNOVATIONS AHEAD
The emergence of sandbox is helping with innovation in the segment, which augers well for the future, highlights Vijay. “A sandbox environment where everything gets documented and IPR gets protected automatically, will help with future innovations,” he believes.
And not just Vijay, but the entire spectrum of industry experts seem to agree. Praveena believes a lot many more services will be provided on API banking framework in the near future. RBI issuing a framework around open banking is a clear signal for more innovation happening in the segment.
The Indian payments processing industry is likely to emerge stronger with more innovations churning at much faster rates than ever before as the sector scales and transforms rapidly.