The Covid-19 pandemic and social isolation norms have resulted in a sharp decline in footfall in most retail and shopping outlets across India. More and more people have turned to online shopping for groceries and other essentials. Even when they need to step out, they have limited the number of visits, spending less time at the retail stores, opting for contactless payment methods and quick checkouts—to reduce the risk of transmission. This has necessitated the adoption of digital payment methods by more merchants to help people shop faster and better, either from the safety of their homes or with maximum efficiency, speed, and minimum social contact at retail stores.

Why merchants in India need to adopt digital payments

Despite the drastic reduction in consumer spending, the Coronavirus outbreak has boosted the demand for digital payment facilities, even at neighbourhood kirana stores. The reasons are manifold. Digital payments can help keep customers safe by limiting in-person cash transactions and reducing contact with the virus. With the surge in online shopping in the Covid era, many merchants have moved online from brick-and-mortar stores. They have set up digital shops on marketplace apps with delivery options like Amazon, Dunzo, Swiggy, Zomato, etc. Some have even enabled phone ordering services while others have built their own websites and mobile apps, equipped with a complete end-to-end simulated shopping experience.

In this modern, fast-changing business ecosystem, merchants need to adopt digital payment methods such as UPI, IMPS, and prepaid wallets, to support customers and provide them with a better and more convenient shopping experience, without compromising on security features. These solutions can help merchants expand their customer base, serve a larger geographical market, improve customer satisfaction and retention, and increase profitability.

Opportunities for growth of digital payment solutions

The digital payments ecosystem in India is thriving, with new payment channels with cutting-edge security features and the best user experience regularly being introduced to customers. An important driver for this demand is the Digital India initiative and the Government of India’s push for a truly cashless society which has given a fillip to India’s dynamic payments infrastructure by paving the way for many innovations. Currently, UPI, launched by NPCI, supports the majority of India’s digital transactions. There are other modes of digital payments such as QR payments, wallet apps, IMPS and USSD payments, prepaid bank cards, contactless PoS terminals, BHIM app, etc. that allow people to enjoy the benefits of cashless transactions.

The demand for digital payments is also fuelled by affordable and improved mobile Internet connectivity and growing mobile penetration among a burgeoning millennial population who are embracing it more eagerly and confidently with every passing day. The e-commerce boom has also boosted the demand for quick, hassle-free, and secure digital transactions. While most e-commerce websites and apps started with limited payment options like credit and debit cards, now they have multi-payment pages with new-age, innovative payment methods for an improved shopping experience. The cash-on-delivery model is also gradually being replaced by digital POS, even for online shopping. The number and total value of digital transactions further increase during the festive season and flagship sale events.

The Reserve Bank of India has introduced measures to promote digital payments in India, such as the proposed Acceptance Development Fund to help small businesses, especially in tier 3 and tier 4 towns, build digital payment infrastructure. The RBI has also mandated the creation of an internal ombudsman by PPI issuers to address the concerns of fraud and transaction failures among wallet users. This move will further instil user confidence in payment wallets. Revision of interchange fees on credit and debit cards by major payments networks will also bring more small merchants into the fold. Moreover, proposed measures such as relaxation in the ‘tap-and-go’ payment limit from ₹2,000 to ₹5,000 will reduce the need to swipe cards for larger transactions and encourage the adoption of safer, contactless PoS payments.

Need for digital payments infrastructure development

Despite a multitude of opportunities, the success of electronic payments, however, ultimately depends on both merchant and customer awareness and adoption. While customers expect easy-to-use, 100% secure, low-cost solutions, merchants want trusted services with scalability, ease of integration with existing payment setups, low installation, service and maintenance costs, and a host of other benefits. It is the duty of financial institutions and regulatory bodies to educate merchants about the benefits of digital payments and enable them to switch to electronic payment solutions easily.

With digital payments gaining mainstream popularity, there is an increasing end-user demand for a more seamless payment experience. This has led to the adoption of next-generation technology to modernise digital payments and in turn, redefine the banking ecosystem in India. Financial institutions need to adopt open banking and work more closely with fintech partners to create better and more customer-centric solutions. They need to develop a more agile, flexible, and secure framework for developing, testing, and deploying cost-effective, feature-rich digital payments.

The evolution of electronic payments has also led to an increase in cybersecurity threats, data breaches, frauds, and identity thefts. With increasing exposure to these financial crimes, security concerns must be of paramount importance to gain and sustain customer trust. The banking sector needs to promote payment methods integrated with security features such as tokenisation, SCA, biometric authentication, payment control, etc. that can offer better protection from thefts and frauds, thereby adding a much-needed layer of safety to these transactions. Empowered by game-changing technology such as artificial intelligence, machine learning, Blockchain technology, and near-field communication, these features also enable financial institutions to monitor and detect risks in real time, deploy security measures, and improve their fraud detection and prevention systems.

Building better digital capabilities require a team of highly skilled professionals, equipped with all the necessary experiences and resources to build fast and cost-effective solutions. Teams need to be more agile; processes need to be redefined to take into account the new work-from-home reality; and managing effective resource allocations to aligned teams needs to be a priority. The future of payments is digital; it will drive financial inclusion in India and will modernise the banking system. Technology and government reforms will revolutionise the digital payments landscape, introducing new trends, and disrupting the market. And the driving force that will catalyse the development of payment infrastructure and underpin its success is its willing adoption by merchants and customers alike.

Views are personal. The author is managing director-APAC, merchant solutions, FIS.

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