Essay on Payment Industry Trends Not for reproduction

1. Encash the Future: Consulting for the New Era of Payments
One small step for consultants, a giant leap for an industry
For generations, people banked the same way till the digital revolution came and re – shaped
how we saved, spent and invested. From mass credit cards to mobile applications that allowed
you to transfer money in a click, there has been a massive shift in how we interacted with money.
However, the point of sale has still not been disrupted by this shift. We still pay in cash or
coupons or by a card. This existing framework necessitates the government to print cash (and in
the case of coins, spend more on the coin than the actual value of the currency), check for
counterfeit currency, manage this currency. Even in the case of coupons or cards, they require an
extensive fraud management system, implementation of an array of back end services and
integration between banks, customers, merchants and card schemes which was, for decades, the
famous four – sector operating model in payments.
This disruption is of course, led by the omnipresence of mobile phones. Using digital modes of
payment for transactions successfully eliminates the need for every pitfall associated with
traditional payment exchanges in a simplified manner. This revolution is led by card scheme
companies such as Visa, who’ve introduced mVisa or payment by scanning QR codes and bodies
such as National Payments Corporation of India who are the brains behind United Payments
Interface (UPI). The declaration of payment bank licenses by RBI to competitive players such as
PayTm and Reliance Jio in turn has got traditional banks to sit up and take notice.
This shake up in the payments industry has got consulting forms to sit up and take notice
resulting in a spin – off of specialized payment consultancies as well as payment divisions within
established consulting houses. From a PWC to EY to the Boston Consulting Group, every
consultant worth his salt want to crack the challenge posed by contactless, cashless, digital
payment technologies.
For consultants, the Indian scenario is specially compelling with the country being the 2​nd
largest
user of cellphones. At the same time, the bandwidth and connectivity are poor, there is an
entrenched cash habit in the masses and reluctance towards organized, regulated payment due to
tax concerns.
Even if we move beyond these micro factors that affect the consumer, the larger impact of these
changes are to be reckoned with. Payment systems affect everyone from the 10 rupee rural
prepaid recharge to the complicated network of retailer – distributor payments. Changes bought
upon as a result of Payments revolution will change how people pay, transform strategy and
KYC norms for traditional Banks and disrupt how merchants interact with consumers and
distributors.

2. There are two factors at play, one is obviously the challenge and scale of problem. How do you
overhaul legacy structures and displace currency with either the touch of a finger (biometrics) or
with a tap on a cellphone or smart watch.
The second factor is the nature of assistance required for the Payments industry. Consultants are
at sea as much as the players in the industry. While Banks have always been slow – movers in
adapting to changes, we have seen SBI push digital rapidly and we have seen the number of
digital wallets (perhaps unnecessarily, in the face of UPI) proliferate. But is pushing a cool –
looking solution, the remedy to all ills? Obviously not, as is evidenced by frauds on Axis Bank,
SBI wallets in recent times and Uber adding cash to its list of payment options.
Also, consultants have to bridge the gap and build solutions for conflicting system, which
necessitates changes not in immediate strategy but uproots other players absolutely. Wallets need
Banks, Banks need Payment mediators, mediators need technology services and technology
services are building wallets!
If these changes weren’t enough, the government and RBI have stepped in to drive payment
changes with the objective of financial inclusion by weeding out black money, digital
redistribution of benefits and reliance on the holy trinity of JAM – Jan Dhan Yojana, Aadhar and
Mobile Money. Insurance and microfinance companies are equally critical players. Another
aspect that is not considered critical but is an overwhelming pie of the payments piece is the
Telecom sector. We have seen the overwhelming success of m-pesa (Vodafone) in Nigeria and
we have also seen the aggressive push of entities like Reliance Jio to overwhelm the market.
Telecom and internet penetration is the single most important factor in availing cashless payment
facilities.
It is therefore an exciting point of inflexion for the players in the Payments Space as well as
advisors/consultants and the old hands in the industry. A senior official from a top private Bank
remarked to me that she has seen more innovation and disruption in the last 2 years than in
culmination in the past 14 years that she’d been part of the payment force.
The broad trends are:
1. Role of Predictive Analytics and Data: Increasing reliance on sophisticated tools and
technologies to act as the backbone of payment systems.
2. Reaching out to the Unbanked: Through various channels and intermediaries.
3. Reformation of Banking to Technology: The removal of human and procedural aspects to
technology frameworks creating a new value change and ecosystem.
It is no wonder that consultancies in the business strategy sphere have set their eyes on milking
the most of this time with strategic collaboration, increased investing appetites, unseen
competition and battling entrenched cash habits and tax habits of the consumer.