Digital Darwinism

Technology and society are evolving faster than businesses can naturally adapt

The payments industry has undergone a paradigm shift. Innovation in service models and customer experience, various macro-events across the country, and regulatory developments, have fuelled a rapid growth in the path few years. Digital payments have grown at a compound annual growth rate [CAGR] of 53 per cent over the last 5 years, and are expected to reach $1 trillion in value by 2023. The growth in digital payments is likely to continue its upward trajectory, thanks to the increase in smartphone penetration, supportive regulatory policies, new platforms enabling proliferation of such transactions, and a thriving and innovative fintech ecosystem. Lifestyle of the millennials will also support this growth.

While the payment needs of the urban and affluent population have been somewhat met, the rest of the population presents a large opportunity in this digital revolution.

As the industry expands further, there will be more collaborations and partnerships involving various players across the value chain, aimed at providing holistic services and ensuring speedier implementation of action plans to reach customers. Innovation and collaboration are crucial in increasing the reach of digital payments and financial services. Technological developments would be equally agile and success would be driven by many unknown factors. Hence, business design requires a rethink.

This is the era of ‘Digital Darwinism’, in which technology and society are evolving faster than businesses can. India has displayed significant growth in digital payments. It now represents one of the largest market opportunities for global technology companies and homegrown firms. Further, the emergence of the five digital forces—social, mobile, analytics, cloud (SMAC) and Internet of Things (IoT)—is helping technology companies come up with innovative and easy-to-use payments products. While the payment needs of the urban and affluent population have been somewhat met, the rest of the population presents a large opportunity in this digital revolution. Widespread adoption of digital payments, however, will require payments products to be as convenient as cash.

While innovations such as mobile wallets have been successful in India, there have been other examples such as NFC (Near-field communication), that have seen very limited acceptance. But, these are gradually gaining traction in India. Contactless and touchless forms of payments will require adequate deployment and acceptance of the right set of infrastructure. The introduction of voice-driven digital assistants such as Apple Siri, Amazon Alexa, Microsoft Cortana, and Google Assistant is providing the springboard for enabling voice-based payments and banking transactions. Customers are already getting accustomed to speaking to their devices for simple tasks. In the future, these customers will be able to accomplish tasks such as checking account balance or making a payment by simply stating a command. With the recent launch of smart speakers, one can explore partnerships to enable voice-based transactions. Payments providers can also enable peer-to-peer payments and bill payments using such voice-driven digital

Social media has come a long way since its introduction as an innovative method of communication. What started as a medium for connecting with peers across the globe has morphed into a platform for conducting day-to-day activities. The latest evolution involves enabling payments through these platforms, especially peer-to-peer payments. The first few cases of social media being used as a payments platform can be traced back to 2015, when e-wallet providers such as Venmo let users sync their wallets with Facebook and convert transactions done within the app into a Facebook status. While these platforms have already made their entry into the Indian market, there is significant room for other, large social media players to create a ‘big bang’ in the Indian digital payments space. Banks may also leverage social media platforms to enable non-financial transactions, which can be done easily while checking the daily feed.

With the increasing adoption of Aadhaar and the launch of payments platforms such as Aadhaar Enabled Payment System and UPI, fingerprints have started gaining traction as a tool to authenticate payment. To make customer experience even simpler, there are alternative biometric modalities—such as face recognition and iris-based authentication—that can be tapped using mobile devices. With the increasing smartphone penetration in India, face recognition and iris-based authentication can be explored to pay bills and conduct day-to-day banking transactions. Voice-based payments can also see wide acceptance, provided that banks and payments providers give local language support.

The payments model is being unbundled, with the number of service providers increasing, technologies making offerings more personalised, and customers making informed decisions. Players are using agile processes, so that products and services can get to markets faster, even as they are fine-tuned. Mutualisation is a case in point. The use of common standards and market infrastructure will enable non-core activities to be packaged and provided as a service to market participants. It is allowing financial institutions to share costs, boost efficiency, and restore focus on core business activities. Today, emerging technologies such as blockchain, robotic process automation and cognitive computing are complemented by the emergence of fintech entities such as prepaid instrument providers, digital lending companies and account aggregators. This is leading to convenient and varied payments solutions platforms.

While payments platforms emerge and evolve, development in localisation is an imperative need to simplify and accelerate payments penetration in India. As more and more consumers in India who might not be fluent in English go online, having applications which support local languages are likely to play a key role in driving customer adoption, comfort and trust in using these applications.

Mehta is partner, Deloitte India.