Laurent Le Moal CEO, PayU
Whilst the western world has enjoyed mature banking and payment systems for some time, a new wave of payments innovation is now taking place globally. In fact, some markets traditionally regarded as less mature are now leapfrogging countries with more established infrastructure. Free from the burden of legacy banking systems and motivated by increasing customer demand, favourable regulation and a collaborative spirit, countries in high growth markets are leading the pack when it comes to large scale payments innovation.
A great example of this leapfrogging trend can be found in India. As the country’s leading payments services provider, we are seeing first-hand that India is fast becoming a hub of payments innovation and disruption at scale. India’s progress has been accelerated by virtue of the many necessary market ingredients required for payments innovation.
India’s payments sector is in a growth phase, fuelled by the country’s intense smartphone growth. Indeed, with 220 million users, India is now the second largest smartphone market in the world. Given that India has a population of over 1.25 billon, its appetite for mobile products and services will only grow.
An impact of this smartphone growth is that, more and more, users see no reason why a payment transaction shouldn’t be channel-agnostic and seamless. They know frictionless payments are technically possible and expect the market to cater to their demands. The better the experience on offer, the quicker the uptake will be.
In practice, however, trying to offer a breadth of payment options in high growth markets are easier said than done. Made no simpler by the knowledge that, in these markets, alternative payment methods – which refer to payments made using something other than a credit card like cash, coupons, bank transfers, prepaid cards etc – still represent as many as two-thirds of all payments, even those made online.
Interoperability and open platforms are critical to help break down the barriers that exist for the fintech companies, financial institutions and businesses that are trying to reach a wider audience and increasingly operate internationally.
We’re already seeing European regulators attempting to tackle these issues with the scheduled implementation of the Payment Services Directive 2 (PSD2) in 2018. While we are still to see the effects of this European regulation play out in real life, the question we must ask ourselves is: what is needed for high growth markets to follow suit?
I believe that, in order for high growth markets to open up to new market entrants, payments players must look at individual markets and their local capabilities and infrastructures and then consider how to make these more open.
Standardisation across these preferred alternative payment methods will drive consolidation, scale, efficiency and safeguard the availability breadth of payment options. This will, in turn, herald the key to consumer growth.
Fortunately for both Indian consumers and payment providers, they are supported in this open platform ambition by a progressive regulator that is open to adopting a legislative framework to promote innovation.
This forward-thinking attitude was evident in the RBI’s November announcement of demonetisation, which laid out the mandate for the removal of as much as 86 per cent of bank notes from the market. The impact of this move was seen all across India, changing almost immediately the way people viewed and used digital payments platforms.
At PayU, we saw our daily transaction volume skyrocket by 80% immediately after the announcement was made. It then settled to a 25% increase compared with pre-demonetisation – still a significant number.
While the outcome of this demonetisation is still to be seen, it’s an impressive and unique attempt at real-time, large scale payments innovation made possible by a regulator ready to disrupt the market.
A third necessary ingredient for payments innovation is the ability to foster collaboration between start-ups and more mature organisations. In recent years we’ve seen the emergence of initiatives and dynamic funding options aimed at supporting these types of partnerships.
An example of this is Prime Minister Narendra Modi’s The Start-Up India initiative. When it launched in 2016 the initiative included a $1.5 billion fund for start-ups, enabling an increasing number of local players to access both the funding and expertise they needed to grow and scale.
While it is encouraging to see more and more banks engaging with start-ups, collaboration must occur between all players in the payments ecosystem for innovation to truly flourish.
This is a belief we kept front of mind when we acquired Citrus Pay in September of last year. The partnership – the the largest ever M&A cash deal in the Indian fintech industry – impacted merchants, consumers, regulators and beyond.
The combination of these three factors has left India perfectly primed to bite at the heals of more developed markets when it comes to payments innovation. Driven by a desire to meet customer demand and aided by favourable regulation and a desire for collaboration, payments innovation in these high growth markets has become almost unstoppable, and in that regard, one to watch.