Swiping India into the future Metamorphosis into a digital economy November 2017 KPMG.com/in Table of contents 06 07 08 10 11 15 18 © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 20 21 23 26 © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 05 Swiping India into the future © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 06 Introduction The Indian payments landscape As per a latest study, the has undergone radical country’s digital payment transformation in the last ecosystem is poised to few years and it has gained reach USD500 billion by further momentum after the the year 202001. Frictional recent demonetisation by the inefficiencies associated government. The current push with cash transactions could by the government towards further propel digital payments. digitisation and start-up India’s cash to Gross Domestic incubation programmes augurs Product (GDP) ratio of 12.04 well for the industry. Many per cent is substantially innovative players like Paytm, higher than other comparable MobiKwik, PhonePe, etc. have countries02. At the same time, emerged in the recent past India ranks very low in respect and disrupted the market of digital transactions as well as quickly. The disruptions have the number of digital payment led to market incumbents points per million people.03 digging deep to match new Given this situation, a transition competitors. to a digitised economy is not only a natural trajectory of progression to a developed economy but also an expedient necessity. 01. Digital Payments 2020, BCG-Google, published July 2016 02. Medium term recommendations to strengthen digital payments ecosystem, Committee on Digital Payments, published December 2016 03. Can India meet the target of 2,500 crore digital transactions in 2017-18?, livemint.com, published 30 March 2017 © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 07 Swiping India into the future Developing a robust ecosystem The first step towards developing should not be any constraints Last but not the least, the an ecosystem is to dream big. during the ideation stage. cybersecurity ecosystem. Payment products or devices Developing a culture of innovation Growing digitisation has should ideally be able to: needs tolerance to fail to a great brought in numerous cyber extent. Only then fresh ideas can threats. There is a need for a • Receive or remit funds to be expected instead of simple well-established security system anyone, anywhere modifications to the present to counter the threats. The • Help in tracking the funds and process and products. This also first layer of the system should also arranging the funds from requires bonding and blending be an internal policing system the best source, including of different ages, genders and within the organisation to ensure lenders backgrounds and dismantling of protection at an organisational any hierarchy in an organisation to level. The second layer should • Know the spending pattern ensure free communication and be at the nationwide level with of the consumer, suggest exchange of ideas. organisations such as the Reserve and effect the expenditure or Bank of India (RBI), Computer investment Another critical element is the Emergency Response Team Financial Technology (fintech) • Use all known technologies (CERT), National Payments ecosystem. There are three from Near Field Corporation of India (NPCI), the major players in the fintech Communication (NFC) to Securities and Exchange Board ecosystems viz. banks, large satellite communication of India (SEBI) defining policies, IT companies and the fintech and design responses in case of • Ensure transaction safety. companies themselves. Fintechs a cyber-attack. Finally, there is a in their early stages are mostly For such advancements to need for a strong cyber-judiciary, small seeder units to banks happen, there is a need for to develop and update cyber laws and IT companies and may not development of multiple and punish the offenders. There is have the capability to grow on supporting ecosystems. Such a need for security professionals, their own. There is a need for ecosystems help ensure the forensic experts, and auditors at a collaborative environment to delivery of a robust, secure, user- each of these layers along with a bring all the players together and friendly, highly available and easily creation of awareness from top to allow them to grow together. accessible payment system. bottom in an organisation. There is also a need to enable The key factor is an innovative policies for such a thing to happen, ecosystem and developing such which is where the regulators an ecosystem is an academic- must act proactively to help industry collaboration. A blend of ensure that fintechs develop free ideas at the academic level into a sustainable business by and inputs from the industry can themselves. lead to mushrooming of start- ups and start-up incubators. In any research organisation, there © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 08 New generation banking: An amalgamation of finance and technology One of the biggest changes etc. However, banks found hand, provide the much needed that the payments industry has themselves lacking the required technological support to banks seen in recent years has been skill sets to build, implement and in order to reach a newer set of in terms of the channels used integrate the solutions relevant to customers. The regulator’s intent to make payments. Hand held the use cases of the consumers. on adapting to the new realities of devices have outgrown all other This combined with the perceived the digital ecosystem and framing channels due to ease of making benefits of being the first policies to that effect is helping transactions and the accessibility movers led them to partner the process. Systems like e-KYC that they provide04. Mobile with the fintechs. This has led (electronic-Know Your Customer) numbers form an important node to the development of a unique and digital signatures have made of the Jan Dhan, Aadhaar, Mobile ecosystem, an amalgamation of customer onboarding completely (JAM) trinity which is aimed finance and technology where paperless. As per RBI’s amended at connecting bank accounts, the fintechs rather than being Know Your Customer (KYC) rules, Aadhaar and the mobile numbers. competitors of banks have started banks can open new accounts by To promote the usage of digital acting as collaborators. simply using the Aadhaar number payments in urban locations and of the customer and a One Time The collaborations have been to accelerate penetration into the Password (OTP) sent to the linked on different fronts with the first hinterlands of the country and mobile number06. The millennials of them being around building develop trust among first-time want convenience and easy or developing ideas. Banks users, the government and the accessibility of financial products organise hackathons and similar banks have undertaken multiple and services. Such services events to source ideas for initiatives. Digi Dhan Mela was provided by online marketplaces development. The second kind of one such mission, which ran for a such as bankbazaar.com, ruloans. collaborations are where banks period of 90 days and offered cash com and policybazaar.com have share Application Programming incentives to both the merchants eliminated the need for financial Interfaces (APIs) in the public and consumers on the usage and non-financial organisations domain for the development of digital payments for retail to invest in building their own of solutions that can address a transactions05. network to source and onboard specific consumer need. Such clients. The collaboration between The push from the government open sourcing is helping develop fintechs and banks is not just also spurred interest from the payment ecosystem. The limited to onboarding, but also for fintech companies who had the third kind of collaboration involves effective customer engagement technology but were missing the exclusive partnerships between and servicing as well. momentum. With the collective banks and fintechs. efforts of the RBI, NPCI and the Such collaborations between government, a robust backbone fintech start-ups and the banks for digital payments in India has are bringing multiple synergies been created by systems such into play. Banks provide easier as Unified Payments Interface 04. KPMG India analysis 2017 means to fintech companies 05. 90 Days of Digi Dhan Mela: Towards Making Digital Payments (UPI), Bharat Interface for Money a Mass Movement, NITI Aayog, Press Release, published 30 to access financial systems March 2017 (BHIM), BHIM Aadhaar, Bharat 06. Amendment to Master Direction (MD) on KYC, DBR.AML.BC. and the fintechs, on the other No. 18/14.01.001/2016-17, RBI, published 8 December 2016 Bill Payment System (BBPS), © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved 09 Swiping India into the future Over the years, form factors for technical prowess well to make fintechs should try and provide various payment products have headways into the payments contextually relevant solutions undergone drastic changes from industry by launching their own to overcome such challenges. cash to cards to personal devices payment products.