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Growth of Payment Gateways and Digital Payment Trends in India

Experts estimate India’s digital payment landscape to grow 300% by 2025, standing at INR 7092 trillion. Govt. policies have played a key role in facilitating this development, promoting financial inclusion and merchant digitisation. According to one report by RedSeer Consulting, India’s digital payments market was worth INR 2162 trillion in 2019-2020.

India currently has over 160 million mobile payment users. This number will increase five times by 2025 and hit about 800 million. Several factors relating to demand and supply will drive this growth in the coming years. In the coming years, mobile payments will steer nearly 3.5% of all INR 7092 trillion worth of digital payments by 2025. The current share of mobile payments is 1%. 

With new avenues for demand and supply opening due to digital transformation, payment gateways will also see large-scale growth and evolution. With payment integration going beyond traditional apps and websites, the upcoming trends in the finance world will strongly determine the growth areas for online payment gateways in India.

Big Technology and Non-banking Competition:

The digital payment domain has been luring Big Tech companies for a long time. It is a revenue-generating opportunity like no other. Digital payments complement the current business offerings of these companies, but they also ensure a lower customer churn and more significant customer stickiness for Big Tech firms. Several large enterprises are already focusing on emerging markets and digital payments as they venture into fresh growth areas.

As leading Big Tech players to cement their position in the payment ecosystem in India, they are ready to develop and explore new finance and revenue models in the industry. These models will play a pivotal role in replacing the fee-based revenue models that have existed till now since the primary revenue sources will change to include more offerings for their consumer base. Most of today’s Big Tech firms have started leveraging existing customer bases and behavioural data gathered over decades to innovate and create better payment solutions. 

After they establish themselves in the digital payments market, Big Tech companies aim at adding other complementary services and products that can help in increasing customer bases and add incremental revenue. The huge volumes of data generated as a result will further help them sharpen customer personas and profiles for improved targeting.

Implementing Open Banking:

Recently, the payment industry as a whole has been largely driven by customer-focused business models. One leading model is the concept of open banking, which third-party services can use for accessing consumers’ banking data from multiple financial institutions through APIs (application programming interfaces). 

Getting access to consumer data allows finance companies and service providers to take a more transparent approach as they customise and optimise solutions for end-users. This will result in stronger customer relationships for financial institutions and help conduct easy risk analysis and credit checks for customers. 

With some private banks taking the lead on this movement, open banking has evolved into a fundamental component of the FinTech (financial technology) domain today. Consequently, there have been significant changes in the domain of online and digital banking today.

– The rise of account aggregators will bring together siloed data, providing a comprehensive view of the financial details of a customer that has been collated through multiple financial institutions.

– Greater customer data availability will result in improved applications, competitive service pricing and evolving user experiences while the ecosystem evolves with so many new players coming on board. Any reluctance towards change in the start will lead to greater digital adoption as we approach the tipping point. 

– Open banking will ultimately result in a higher competition level for larger banks from the new up and coming financial institutions and FinTech firms. This will compel all the parties to upgrade legacy systems, services and technologies and offer tech-centred new-age solutions. 

– With easy customer data access for FinTech startups, these institutions can provide more targeted, innovative and personalised solutions for modern consumers in domains like digital lending and insurance.

Offline Payments:

Online payment platforms have advanced from plastic cards to mobile-based solutions when it comes to online transactions. In all this, offline payments as a domain remain widely unexplored and hold several big opportunities when it comes to digital payments. Their most common application today is in transit use cases. Going forward, new offline payment solutions that cater to a wide range of use cases will come up. They will help in bringing a large portion of underserved as well as unserved segments into the fold of digital payments. This is a huge benefit in cities where there is sparse internet connectivity.

Sustained Digital Payment Innovation:

For a while now, India has led the digital payments space through global innovation. This is not likely to change any time soon. Stakeholders have been trying to develop new solutions and explore the domain of global and international payments. Some of the most promising innovations today are:

–   Pan-India payment entities: The Reserve Bank of India (RBI) has created a framework that defines the governance and eligibility criteria for new businesses as well as a scope of activities. The purpose behind this was to strengthen the landscape of retail payments and encourage healthy competition. A mixed bag of payment networks, banks, financial investors and service providers are expected to join this revolution that aims to provide innovative products, services and payment infrastructure that will widen the market.

–   Cross-border remittance:  The RBI also plans to set up innovation centres that will explore initiatives and technologies that can help in simplifying and recasting the cross-border payments space and also increase the affordability and accessibility of these payments. 

–  PIDF (Payment Infrastructure Development Fund): This fund will play a significant role in strengthening the infrastructure for accepting digital payments. It will focus especially on smaller cities (Tier 3 to Tier 6) as well as North-Eastern Indian states. The PIDF was set up with an investment of Rs. 345 crore and encourages innovation in the payments acceptance domain, especially in rural India. This is where digital payments face significant challenges related to connectivity, costs and awareness, among other factors.

India’s digital payment ecosystem has gone through several significant developments so far. This ranges from the launch of innovative payment platforms and dedicated solutions to the regulatory guideline formation that results in increased adoption of digital payments. By partnering with a credible payment gateway provider, you can ensure that any new online payment system can be easily integrated with your current enterprise infrastructure.

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