Payments landscape will see faster changes over next ten years: PwC

Key factors include technology, customer expectations, global demographics, e-commerce and the growing impact of regulation

The payments landscape in emerging markets (EMs), including India, is expected to transform on the backbone of accelerating growth in electronic payments given the advent of new and disruptive market players and alternative business models, said PwC in a recent report released Tuesday. 

The growth of economic power within emerging markets and their potential to leapfrog developments in mature markets will aid the creation of a state-of-the-art payments ecosystem, said PwC in a report titled 'Emerging Markets: Driving the payments transformation'. 

The report examines the current state of the payments industry across the emerging markets, identify key drivers and developments already underway and determine what is required to realise the market potential between now and 2030.

Vivek Belgavi, FinTech Leader, PwC India said, “Given the underlying infrastructural issues in emerging markets, there needs to be a focus on developing the infrastructure both for issuing and acceptance of payments products and instruments. Alternate payment instruments and modes like mobile wallets, virtual cards and accounts, social media and contactless payments are gaining traction for specific use cases, especially the unbanked customer base, driven by technology, customer needs and declining margin.”

In India, the new payments banks (who cannot lend but can borrow up to a limit) are expected to start operations in 2016. Since the focus of these banks will be solely on transactions, they will look at providing seamless transaction options for payments such as utility bills, mobile bills, and school or college fees, either electronically or through the banking touch points created by these players. 

At the core of this change will be technology, which in addition to maintaining current standards of reliability, is expected to also reduce transaction times, improve security, increase acceptance channels (especially physical), and – in the case of merchants – lower transaction costs. Leveraging enabling infrastructure and standards such as Unified Payment Interface (UPI) and Bharat Bill Payment System (BBPS) would be critical for success.

Hugh Harley, Financial Services Leader for Emerging Markets, PwC stated “Given the large unbanked population and the growing regulatory agenda to engage these people into the financial system, emerging markets are in a unique position to drive growth in the payments industry.” He further mentions that “FinTech companies can work as a catalyst in the growth story,enabling these new platforms to be leveraged for the benefit of the wider populations.”
 

Cutting-edge technology will reshape the next-generation payment systems, with both FinTechand established players driving innovation. The payments ecosystem will also be redefined by regulatory interventions, which are balancing the disruption of alternative payment service providers (PSPs) with the reliability of traditional players. Here are the key takeaways from the report:
 

Over the next 10 years (and beyond), the payments landscape will see faster changes, building on the accelerating growth in electronic payments and the advent of new and disruptive market players. And EMs will be at the forefront of this payments. 

EMERGING MARKETS: PAYMENTS LANDSCAPE

• Nearly 90% of people under 30 years reside in emerging markets and the same demographic also accounts disproportionately for online transactions.
• Majority of the two billion unbanked population resides in emerging markets
• 89% of payment executives in emerging markets believe that products and business models need to change to meet future customer expectations.
• A new breed of mobile and FinTech innovators are disrupting the payments market with innovative customer centric business models

 

The growth in economic power within the emerging markets and their ability to leapfrog developments in mature markets will aid the creation of a state-of-the-art payments ecosystem, which will set the pace for markets worldwide. Payment platforms will evolve from being commoditised propositions to strategic solutions that complement and add value to people’s lifestyles.

While banks often have a limited understanding of their customers and operate a vastly complex product set, the winners of 2030 will turn this on its head. They will develop a comprehensive understanding of their customers and dramatically simplify their product range. This will enhance customer experience, lower operational risks and see more customer-centric business models.

Factors that will shape this transformation will be technology, shifting customer expectations, changing global demographics, the rise of e-commerce and the growing impact of regulation.
 
In 2030, payments will be much more than just the movement of funds. PSPs will develop enhanced value propositions based on individual accessibility, coupled with customer convenience and changing lifestyles, while ensuring adequate levels of security and risk mitigation.

The shift has already begun and is being led by the entry of non-traditional players, the emergence of new solutions, and the development of strategic partnerships that cross traditional industry boundaries.

The transformation will be characterised by convergence across markets – convergence around products and solutions linked to payments, around technology platforms and even regulations – that will be global in nature and reach. The young ‘tech-savvy’ populations of the emerging markets will lead the shift in payments expectations among retail and commercial consumers.

The drive for innovation will also accelerate development in areas such as blockchain technology, which promises to simplify international remittances and reduce transaction times by more than half. 

Payments space in India: PwC report

The regulators in India have been among the first to innovate and promote financial inclusion initiatives. One of the key ones being, enabling biometric ID for all resident individuals in India under the Aadhaar programme which is smoothening a lot of government grants through online and cost effective beneficiary identification. Indian payment industry thus stands out and is driving above-average growth in non-cash payments. In 2014, the Prime Minister of India launched a financial inclusion campaign (PMJDY: Pradhan Mantri Jan Dhan Yojana) that generated 125 million accounts within six months49. In addition, the RBI has established new guidelines for differentiated banks – institutions whose objective is to improve the state of financial access by providing basic banking and remittance services to migrant workers, low-income households, small businesses, and other underserved sectors. The RBI has ‘in principle’ approved more than 10 such institutions.

Such initiatives have triggered the strong adoption of electronic payments and the rise of new market entrants. Mobile banking transactions tripled between 2012 and 2014, hitting 150 million in 2014. And mobile-wallet transactions have gone past m-banking transactions. Pre-paid payment instruments providers (which offer m-wallets) have been attracting growing interest from consumers and have motivated banks to invest in their own digital payment offerings.