HOW DID INDIANS PAY

An indepth report on digital payment trends in India and the future of mobile payments

In FY 2018-19, there was a concentrated effort by the government and banks to increase the deployment of point of sale (POS) terminals; the target was 2 million terminals but the achievement was half of that.

Merchant Acquiring

For FY20, the government has now targeted a growth of 33%. It has also mandated the banks to deploy around 8.5 million POS terminals across rural areas and NorthEastern states. This move to promote deployment of POS terminals is an indication of the way ahead for the sector. Given this potential and the fact that the merchant acquisition infrastructure remains largely unfulfilled, several companies have entered the physical POS terminal market and made investments to install POS terminals across retail outlets.

The private sector banks led the way with POS terminal deployment both in terms of numbers and year-on-year growth. The total POS terminals deployment stood at 2.4 million for private sector banks (up by 31% from Mar-18), 1.1 million for public sector banks (down by 0.8% from Mar-18) and 0.07 million for foreign banks (up by 6.7% from Mar-18).

A point to note is that while 29% of transactions on POS terminals were done using credit cards, they translated to 52% of the total amount spent on POS terminals. One reason is the conservative nature of Indian consumers who mostly use debit cards for their daily purchases and credit cards for purchasing high value items. In Q1 2019, the average ticket size on POS terminals for debit card transactions was INR 1,323 and INR 3,477 for credit card transactions.

In addition, the growth in volume and value of POS terminals didn’t translate to the total share of transactions done by cards (ATM + POS). While the transactions at POS terminals increased from 1.3 billion transactions in Q1 2018 to 1.6 billion transactions in Q1 2019 (up by 24.8%), the share of card transactions at POS terminals to total card transactions went up from 36% to 38% only.

Similarly, while the value of transactions at POS terminals have increased from INR 2.4 trillion in Q1 2018 to INR 3.1 trillion in Q1 2019 (up by 27.4%), the share of value of money spent through cards at POS terminals to total money spent through cards at POS terminals and ATMs went up from 24% to 27.6% only.

The above information is of particular interest because the number of POS terminals actually increased by 18.6% while the number of ATMs remained constant at 0.2 million during the year indicating that despite the push from the government to increase awareness about digital payments along with the sustained effort by banks to enrol merchants to join the digital payments platform, cash is still king.

RBL Bank, State Bank of India, Axis Bank, HDFC Bank, ICICI Bank and Corporation Bank, accounted for over 75% of the total terminals in the country. January was the month with the highest number of transactions in Q1 2019. January 23 ranked as the day with the highest number of transactions but this should come as no surprise given the commencement of the Republic Day sale offers. The days with second and third highest number of transactions were January 12 and January 13 which were Lohri and Makar Sankrati respectively. The trend of highest number of transactions recorded during festivals continued like previous year.

The merchant categories with the highest volume and value of transactions in Q1 2019 were Grocery, Restaurants, Petrol Stations, Apparel Stores and Specialty Retail which accounted for about 65% volume of transactions and about 40% value of transactions. The categories remained the same for both credit and debit card transactions.

Unified Payments Interface

UPI has been key in steering the entire ecosystem of consumers, payment processors and banks towards digital transformation and it continued its monumental growth in 2019. The total volume of UPI transactions in Q1 2019 was 2.1 billion, a 328% increase from Q1 of the previous year. In terms of value, UPI clocked INR 3.5 trillion, up 495% from Q1 of the previous year.

Some banks have sent notifications to their customers stating that P2P (peer-to-peer) UPI transactions, from May 1, 2019, would be chargeable after 30 transactions while P2M (peer-to-merchants) transactions will continue to remain free. This is intended to prevent abuse of the UPI system where individuals are taking advantage of offers given on UPI transactions and will not impact genuine transactions. The uptick may slow-down slightly because of this but the increase in P2M transactions because of UPI 2.0 and the government’s plan to make QR code-based payment mandatory in all shops will likely nullify the negative effect.

THE RESERVE BANK OF INDIA IN ITS LATEST VISION DOCUMENT NOTED THE DECLINE IN PAPER-BASED CLEARING INSTRUMENTS AND OBSERVED A SIGNIFICANT GROWTH IN ACCEPTANCE INFRASTRUCTURE FACILITATING DIGITAL PAYMENTS DURING 2015-2018. IN THE YEARS TO COME, WE ARE CONFIDENT THAT INDIA WILL WITNESS OVER A 50 PERCENT RISE IN MOBILE-BASED PAYMENT TRANSACTIONS AS PROJECTED IN THE DOCUMENT — Deepak Chandnani, MD, Worldline South Asia & Middle East

Local players such as Paytm and PhonePe have been competing for market share in the digital payments space, facing stiff competition from the global giant Google. They together process 80-90% of UPI transactions, of which Paytm leads in terms of transactions volume and Google Pay leads in terms of transactions amount. This essentially means that Google Pay is quite close to Paytm in terms of volume and way ahead of in terms of value. Freecharge, Mobikwik, HDFC PayZapp, ICICI Pocket are the other players on the UPI platform. Aggregators like Ola and Uber are also issuing their UPI handles. Amazon Pay has finally marked its entry in the Indian P2P (peerto-peer) transaction market; its entry in UPI payments was delayed due to data localisation and data privacy regulations and it had relied on providing online payment services via UPI apps like BHIM.

Also, with the upcoming WhatsApp Pay, the UPI platform is bound to break its transaction records in the coming months. UPI has the potential to transform the payments ecosystem in India and we’ve only seen the tip of the iceberg. Immediate Payment System (IMPS) continued to rise despite the growth in UPI and wallets, and showed a strong jump in Q1 2019. IMPS recorded 528 million transactions, a 71% increase from Q1 of the previous year. In terms of value, IMPS clocked INR 4.7 trillion, up 70.5% from Q1 of the previous year.

Card Issuance

Card payment instruments remain the most preferred option among consumers primarily because of the ingrained behaviour of consumers to pay for items through cards, credit or debit. Card issuance will see an uptick with the rise of several metro and smart city projects. National Common Mobility Cards (NCMC) solution has the potential to digitalise transit payments like Bus, Metro, Cab etc. and other payment channels like toll, parking, small value offline retail payments and normal day-to-day retail payments. In addition to this, payments banks and aggregators are also set to introduce credit cards to a new all-digital consumer base.

There are about 925 million debit cards and about 47 million credit cards in circulation. Between March 2018 and March 2019, India added about ten million credit cards and 64 million debit cards. It is worth noting the number of debit cards started falling after hitting a high of 998 million in October, likely due to the mass closure of accounts with zero balances. In Q1 2019, the total number of credit card transactions was 466 million, an increase of 24.5% over the previous year and the total number of debit card transactions was 3.7 billion, an increase of 18.5% over the previous year.

In Q1 2019, total value of transactions done on credit cards was INR 1.6 trillion, an increase of 30.4% over the previous year. The total value of transactions done on debit cards was INR 9.6 trillion, an increase of 8.4% over the previous year. It is quite clear that debit cards are largely used for ATM withdrawals while credit cards for POS transactions. Also, consumers tend to make larger ticket size purchases at POS terminals when compared to debit cards. The challenge will be how to move ATM transactions into digital payment transactions which fits into the national agenda of going digital.

SOME OF THE KEY IMPEDIMENTS TO THE GROWTH OF DIGITAL PAYMENTS ARE LACK OF FINANCIAL LITERACY AMONGST SMALLER MERCHANTS, HIGH PROPENSITY OF HOUSEHOLDS TO SAVE IN CASH AND THE UNORGANISED CASH-INTENSIVE SMES

THE NUMBER OF POINT OF SALE (POS) TERMINALS INCREASED TO 3.72 MILLION IN MARCH 2019, AN INCREASE OF 18.6%, FROM 3.14 MILLION IN MARCH 2018.