Post demonetization: growth of a fintech ecosystem in India

Post Demonetization analyses have missed an important development, the growth of a ‘fintech ecosystem’ in India, in which the banks, government, financial organizations, and fintech startups, all have the equally viable opportunities for growth. This development has created a new environment in the country. The systems that were not even imagined before demonetization are now a part of the routine life of a majority of people living in the urban and rural India. The Unified Payment Interface, a single window mobile payment system launched by the National Payments Corporation of India (NPCI) is the leading player of this change. For the successful acceptance of a digital financial product/service, gaining the trust and confidence of the end user is a crucial factor, and UPI has worked well on this aspect.

In the month of November 2017, after one year of the Demonetization drive, at the Singapore Fintech Festival, Finance Minister Arun Jaitely had said that one of the most important aspects of the Demonetization is that “it has brought the issue of digitization of the economy to the centre-stage and the consequence of this has been that in the last one year, the number of digital transactions has almost multiplied by 100%, and new kinds of technologies, applications, instruments have been emerging, the banks and government and other financial/fintech companies have all been innovating and creating new payment gateways, and the mode by which India now spends its money substantially has begun to alter.”  The agility, at which the government entities have worked to make this change happen, we have not seen such pace even in the corporate setup before.

While the private sector fintech players were busy in discussing the blockchain/cryptocurrencies, were planning the branding strategies to target the most profitable segments and affluent class customers, and were involved in some over-hyped marketing strategies, NPCI was working on the broader vision of financial inclusion and has developed not just an app but an app ecosystem called BHIM UPI, and today every UPI app (bank or non bank) is now called BHIM UPI App.

The NPCI envisaged that India, with more than 650 million mobile phones and over 300 million smartphone users is a fertile ground for the mobile banking ecosystem and it has decided to develop a platform which can cover the billions of Indian customers irrespective of their current financial status because when you are dealing with a billion numbers the size of amount is not so relevant. Which we have seen in the case of Jan-Dhan accounts, in which as of April 2018, the unbanked and underbanked people of India have deposited ₹80,000 crore, an amount which no one estimated before. The Global Findex 2017 Report released by the World Bank has recognized India’s financial inclusion efforts too. The report has cited the success of Jan-Dhan Yojana and mentioned that during 2014-2017, there are about 51.4 crore bank accounts opened globally in which the accounts from India form almost 55% of the part.

In the FY 2017-18, digital payments through BHIM UPI received a spectacular growth of 915.23 million, up from 17.87 million in 2016-17. After leveraging the consumer market successfully now NPCI is going to launch UPI 2.0 (the first version of UPI was launched in August 2016), to provide enhanced services to the merchants. The UPI 2.0 will allow the traders to send GST invoice or bill to their customers and it will integrate some advanced features such as signed intent QR, UPI mandate, and P2C (Production to Consumer) payment option too.

According to some official stats, as of Jan 2018, there are 91 payment system operators in India and Mobile wallet transactions have grown 590.30% year-on-year. Digital Financial Transactions i.e. payments through credit/debit cards, UPI, prepaid payments instruments, internet banking and USSD,  touched a new peak in terms of volume as they crossed 1.11 billion in January 2018 up from 1.06 billion in December 2017. As per the RBI data, since inception, UPI-based transactions have seen a massive increase of 7000% in terms of volume.

India’s fintech revolution is moving by the Public Sector entities which are otherwise known for their bureaucratic culture and risk-averse portfolio. This can be an interesting case study that how a trend which is broadly associated with the innovative startups around the world, has gained momentum in India, through a public sector ‘not for profit entity’ called National Payments Corporation of India, which has launched 24x7x365 mobile platforms to send and receive payments. NPCI has launched a series of revolutionary payment systems like UPI, USSD, BHIM App, Bharat Bill Pay, BharatQR, RuPay Card and several other AEPS (Aadhaar Enabled Payment System). NPCI is working on a fast track mode to make India a ‘less-cash’ society. In a recent interview CEO of NPCI, Dilip Asbe has said: “Consumer choice is the main principle on the basis of which we have designed the UPI platform.” This customer-centric approach has helped NPCI to lead the Indian fintech market.

During the last four years, NPCI has rolled out a number of customer-centric innovative platforms and services. In August 2014, ‘*99#’ service was launched to make the banking easily accessible for every common man across the country. Banking customers need to simply dial ‘*99#’ code from their mobile and then they can perform general banking transactions through an interactive menu displayed on their mobile screen, similar to that of a mobile recharge and balance check services. Prior to the launch of UPI, this service had the limited reach as only MTNL and BSNL were offering this facility. On 28th August 2014, PM Modi dedicated ‘*99#’ to the nation as a part of PMJDY. With the help of Unstructured Supplementary Service Data (USSD) channel, it is now offered by 41 leading banks and all GSM service providers. For the users of basic feature mobile phones, the ‘*99#’ service, which is available in 13 different Indian languages, is a great support.

Launched in April 2016, Unified Payments Interface (UPI) has become a leading force in the trajectory of government’s financial inclusion drive. The UPI facilitates fund transfer between two bank accounts on the mobile platform instantly. It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per requirement and convenience. Each Bank provides its own UPI App for Android, Windows and iOS mobile platform. After 3 months of its launch, in August 2016 Bharat Bill Pay was introduced. Bharat Bill Pay is a one-stop payment system that offers “Anytime Anywhere” bill payment service across the country. Its multiple payment modes facilities and instant confirmation of Bill payment via SMS feature make it easy to trust and adopt.

In December 2016, NPCI has solved one of the most serious problems of the country by streamlining the toll collection process. The National Electronic Toll Collection (NETC) system (under implementation) will reduce the congestion at the highway drastically. The NETC utilizes FASTAG, a passive RFID tag attached to the vehicle, which will get scanned every time the vehicle enters the toll gate, and the toll gets deducted automatically from the vehicle owner’s account. NHAI has mandated the implementation of NETC for all national highways and according to the latest directive all new vehicles from March 2018, needs to be fitted with FASTAG. Last year, NHAI launched two mobile Apps – MyFASTag and FASTag Partner to facilitate the FASTAG system.

On 30th December 2016 PM Modi has launched a mobile app called BHIM (Bharat Interface for Mobile) based on UPI, which allows simple and fast payment transactions using an only mobile number or UPI ID. The Aadhaar based payment and thump impression authentication kind of features are integrated into this app to make small merchants and their customers (particularly from rural/remote areas) to participate in the ‘less cash’ economy.

NPCI is continuously working to build more and more effective use cases for BHIM UPI to streamline the whole payment system of the country. In March 2017, it has launched Bharat QR, the world’s first interoperable payment acceptance solution. Some of the major payment networks such as Master Card, American Express, and Visa have collaborated with NPCI to promote Bharat QR payment method and a number of merchants are being on-boarded on Bharat QR. The Confederation of all India Traders (CAIT) is promoting Bharat QR among the traders’ community to support government’s 30 billion digital transactions target in FY 2018-19 as for the Indian traders the BharatQR is the best alternative among all digital payment solutions. From this year, the NPCI has made BharatQR code mandatory for all UPI bank apps.

The vision 2018 of RBI, aims to build a less cash India through responsive regulation, robust infra, effective supervision and customer-centric approach. In India’s government-backed Fintech Ecosystem, there is a room for everyone, from small rural merchants to growing startups to big financial organizations. There is no doubt that Demonetization is a quantum leap toward India’s ‘less-cash’ economy.

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