THE FIVE-STEP GUIDE TO CAPITALIZING ON THE EVOLUTION OF REAL-TIME PAYMENTS IN INDIA HOW CAN YOU ENSURE YOUR SYSTEMS CAN COPE WITH GROWING DEMAND? THE PAST FEW YEARS HAVE SEEN HUGE ADVANCEMENTS DOING NOTHING IS NOT AN IN HOW PAYMENTS AND BANKING ARE CONDUCTED IN INDIA. OPTION, AND WILL INEVITABLY MEAN FALLING BEHIND, AS Driving this is consumer appetite, with 88% (Unified Payments Interface) by the National of people preferring digital*, cashless Payments Corporation of India (NPCI), OTHER BANKS CAPITALIZE payments over notes, cards and coins; and fundamentally changing the RTP landscape UPON THE SIGNIFICANT a widespread move to online banking. Yet in India. OPPORTUNITY THAT THE the government has also been instrumental in accelerating the growth of financial In the simplest terms, India is signed up to GROWTH AND EVOLUTION innovation, including real-time payments innovative ways of managing money. So, OF RTP PRESENTS. (RTP). Initiatives such as Digital India (due for clearly, this is an opportunity for Indian banks completion in 2019), and the 2016 launch of to prioritize modern, technology-led ways the DigiShala television channel, are promoting of working. digital payments and educating citizens. The Reserve Bank of India’s (RBI) Vision However, many instead face a huge risk. HERE ARE FIVE WAYS THAT BANKS 2018 program worked to strengthen existing The growth of RTP in India is so profound payment systems, and to introduce newer that current solutions designed to facilitate CAN ENSURE THEIR TECHNOLOGY innovative payment products, to help banks it will soon be unable to cope with demand. REMAINS READY FOR REAL- and financiers meet the expectations of the This could cause system failure, increased government’s demonetization plan. Meanwhile, risk of fraud and, of course, the significant TIME AND CONTINUED DEMAND, an RBI directive saw the launch of India's UPI reputational damages each of those entails. COMPETITION AND EVOLUTION. 2 THE FIVE-STEP GUIDE TO CAPITALIZING ON THE EVOLUTION OF REAL-TIME PAYMENTS IN INDIA 1 INNOVATE TO COMPETE PAYMENTS ARE IN THE MIDDLE OF A PERIOD OF MARKED TRANSFORMATION, WITH NEW, DIGITAL WAYS TO PAY BECOMING COMMONPLACE, ALONGSIDE CHANGING CONSUMER EXPECTATIONS AROUND SPEED, VISIBILITY AND SECURITY. McKinsey reports in Global Payments: 2018 trajectory in India has been sharp. Take-up has that apps (such as wallets like Apple Pay and been widespread and people now expect RTP brand-owned apps with a payments facility) in all their banking services. accounted for 30% of global payments in 2017, and this kind of change is expected to continue In March 2019, official UPI statistics showed into the future, stating that "digital payments that almost 800 million transactions (totaling will double in volume over the next five years 1.3tn INR) were made and 142 banks were to represent approximately 29 percent of live on the system. That’s up from 178 million consumer POS payments." payments in March 2018, when just 91 banks were live, representing 4.5 times growth. The challenge today for those in India is that It’s inevitable that this growth will continue, these changes are more profound for them particularly with NPCI announcing a usage than they are for other markets. As the graph fee cut to encourage wider adoption. on the following page shows, the RTP growth 3 THE FIVE-STEP GUIDE TO CAPITALIZING ON THE EVOLUTION OF REAL-TIME PAYMENTS IN INDIA Tracking digital payments growth 44 48 52 55 60 67 86 97 110 114 128 129 139 144 142 ADDING TO THIS, MAJOR DIGITAL 90000 900.00 PAYMENT PROVIDERS ARE 80000 800.00 PRIORITIZING THE INDIAN MARKET: 70000 700.00 No. of • WhatsApp chose to prioritize the Indian market to banks live launch its UPI-enabled payments solution, with a trial 60000 on UPI 600.00 that processed a million transactions in a month 50000 500.00 • The introduction of Google’s Tez app (now Google Pay) gained almost eight million users in its 40000 400.00 30000 300.00 • Amazon is said to be targeting India with its payments platform, acquiring Tapzo in order to 20000 200.00 accelerate growth in the country 10000 100.00 It’s important for banks to note that the 0 0.00 real-time growth they are experiencing is unrelenting. So they need to harness new Se 17 Jul 17 Jul 17 Jul 19 Jan 17 Jun 17 Jun 17 Jan 19 Jan 19 Oct 17 Jun 19 Mar 17 Mar 17 Apr 17 Apr 17 Oct 18 Feb 17 Feb Mar 19 Apr 19 Sep 18 Feb 18 Feb Dec 17 Feb 19 Feb Dec 18 Nov 17 Nov May 17 May May 17 May Nov 18 Nov Aug 17 Aug May 19 May Aug 18 Aug innovations that can cope with the complexity SOURCE: NPCI. NATIONAL PAYMENTS CORPORATION OF INDIA Trxn Value (Rs. In Cr.) Trxn Volume (mn) and demand of RTP if they are going to be able to capitalize on its growth. Advanced RTP in India • UPI works on a four-party model, while other markets work on a two- or three-party model As McKinsey states, "It’s vital for banks to • The Indian payments market is expected to exceed $1 trillion within three years leverage digital platforms to meet clients’ • UPI transactions have grown by four times in the last 12 months expectations for a seamless end-to-end • RTP is growing so rapidly that it’s expected to overtake debit card transactions by 2022 experience." The risk of doing otherwise will be allowing other, more digitally competent banks India is credited as having one of the most advanced digital payment infrastructures in the to seize the opportunity. Banks that do not take world. So it’s no surprise that tech giants like WhatsApp, Google and Amazon are prioritizing advantage of this opportunity will be relegated the market. Succeed in India, and they can roll their services out to the rest of the world. to utility or infrastructure providers in the new payments ecosystem. 4 THE FIVE-STEP GUIDE TO CAPITALIZING ON THE EVOLUTION OF REAL-TIME PAYMENTS IN INDIA 2 UNDERSTAND THE CONSUMER, BUSINESSES AND THE REGULATOR GOVERNMENTS AROUND THE WORLD ARE UNITED IN ENCOURAGING TAKE-UP CONSUMER PRIORITIES OF REAL-TIME PAYMENTS For consumers, the most important attributes of RTP are convenience and clarity. Real-time systems alleviate the pain points AND BANKING. that exist in legacy banking infrastructures that are not designed to work in a digital world, and do not allow them to realize the full Over the past few years, we have seen the benefits of open banking. launch of the U.K.’s Faster Payments Service (FPS) in 2007, Singapore’s FAST in 2014, RTP for consumers: Australia’s New Payments Platform (NPP) • Account portability, in order to link to any bank or non-bank UPI app to carry in 2017 and the European Payments Council’s out transactions (EPC) SEPA Instant Credit Transfer (SCT) • Payments to simple identifiers, such as mobile phone numbers or virtual IDs, in 2017. instead of complex account details • Real-time settlements Among these, India’s UPI is highly rated • Merchant payments (online in-app or at offline stores by scanning a QR code) as a solution to facilitate real-time and • Request to Pay, which makes bill management easier by negating legacy ways of open, digital payments for consumers and paying for utilities or services, and removing the need for consumers to pay bills businesses. For banks, the key to harnessing by cash its growth will be understanding the priorities • Well designed mobile applications that deliver a frictionless user experience. of their consumer, merchant and corporate customer groups. 5 THE FIVE-STEP GUIDE TO CAPITALIZING ON THE EVOLUTION OF REAL-TIME PAYMENTS IN INDIA MERCHANT PRIORITIES Similar to consumers, merchant businesses see huge convenience benefits when it comes to real-time. However, RTP also has a cost benefit, by bringing down the level of investment they must make on acquiring infrastructure. Meanwhile, API-enabled systems and more functionally rich data standards provide invoices and payments that map to the reconciliation needs of the corporate customer. All these factors address merchant or business pain points around payments system efficiency, cost and speed. RTP for merchants: • Collecting payments using mobile and QR codes as the acquiring tools • Sending bulk payment requests to customers • Seamlessly collecting in-app payments • Low infrastructure and transaction costs GOVERNMENT PRIORITIES For India in particular, the government has been integral to the introduction and growth of RTP. Regulators and lawmakers have been motivated to evolve the way money moves around its economy as a way to address the country’s large unbanked population and to take advantage of the habits of the vast number of internet users (the second largest in the world, around half of whom access the internet through their phones). RTP for governments: • Finding clarity in how money moves around the economy • Eliminating money laundering and fake currency • Simple, lower-cost payments disbursement • Collecting taxes in new and more efficient ways 6 THE FIVE-STEP GUIDE TO CAPITALIZING ON THE EVOLUTION OF REAL-TIME PAYMENTS IN INDIA 3 USE INFRASTRUCTURE MODERNIZATION TO HARNESS OPEN BANKING IN INDIA, RTP AND OPEN BANKING ARE INTERLINKED, WITH THE LATTER MAKING ITS INTRODUCTION THROUGH UPI. The interoperability, open architecture and It’s therefore down to banks to invest in the standard guidelines around UPI and the infrastructure that will allow all this to happen. payments ecosystem are changing the market The risk of doing otherwise is losing ground to by making banks less reliant on traditional digital-first FinTechs, for whom real-time, open OF INSTITUTIONS BELIEVE products and services, and opening the door banking is their default way of working.